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It is generally believed that component-based software development leads to improved application quality, maintainability and reliability. However most software reliability techniques model integrated systems. These models disregard system's internal structure, taking into account only the failure data and interactions with the environment. We propose a novel approach to reliability analysis of component-based systems. Reliability prediction algorithm allows system architects to analyze reliability of the system before it is built, taking into account component reliability estimates and their anticipated usage. Fully integrated with the UML, this step can guide the process of identifying critical components and analyze the effect of replacing them with the more/less reliable ones. Reliability assessment algorithm, applicable in the system test phase, utilizes these reliability predictions as prior probabilities. In the Bayesian estimation. framework, posterior probability of failure is calculated from the priors and test failure data.