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The paper investigates an optimal scheme on cross-layer design which combines adaptive modulation (AM), cooperative diversity at physical layer and the automatic repeat request (ARQ) protocol at data link layer to improve Spectral efficiency in cooperative amplify and forward (CAF) wireless network. We obtain probability density function (pdf) at destination node of the proposed system by using moment generating function (MGF), adjust signal to noise ratio (SNR) threshold based on average packet error rate of each mode, to derive Spectral efficiency for CAF system over both independent and identically distributed (i.i.d.) and non-i.i.d. Rayleigh fading environments. The numerical analysis shows that, compared with the previous scheme, the overall Spectral efficiency of the proposed scheme has been improved, especially as retransmission times increases. Under certain packet loss rate, we further search the maximum Spectral efficiency and the corresponding optimal number of retransmission in a region of maximum retransmission times.