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Real-time interactive video transmission in the current Internet has mediocre quality because of high packet loss rates. Loss of packets in a video frame manifests itself not only in the reduced quality of that frame but also in the propagation of that distortion to successive frames. This error propagation problem is inherent in any motion compensation-based video codec. In this paper, we present a new error recovery scheme, called recovery from error spread using continuous updates (RESCU), that effectively alleviates error propagation in the transmission of interactive video. The main benefit of the RESCU scheme is that it allows more time for transport-level recovery such as retransmission and forward error correction to succeed while effectively masking out delays in recovering lost packets without introducing any playout delays, thus making it suitable for interactive video communication. Through simulation and real Internet experiments, we study the effectiveness and limitations of our proposed techniques and compare their performance to that of existing video error recovery techniques including H.263+ (NEWPRED). The study indicates that RESCU is effective in alleviating the error spread problem and can sustain much better video quality with less bit overhead than existing video error recovery techniques under various network environments.