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Ad-hoc on-demand routing protocols like AODV establish and maintain routes on-demand. However, the paths established by on-demand protocols, which are optimal during the route establishment phase, become sub-optimal over time due to node mobility. We propose a path compression algorithm (PCA) that optimizes the established routes when feasible without incurring extra overhead. By utilizing a promiscuous mode of operation, nodes 'hear' hop counts embedded in the IP optional header of data packets to find shorter paths. PCA avoids unnecessary aggressive and ephemeral route updates, which improves the protocol performance. Routing path optimality is important as the optimal path reduces the packet drop ratio, the end-to-end delay, and the energy dissipation of end-to-end data transmission. We conducted simulations using GloMoSim to evaluate the performance of our algorithm and compared it with AODV and a related protocol in the literature - SHORT. Our simulation results show that PCA achieves high delivery rate, low control overhead, low end-to-end delivery and low average hop count compared to both AODV and SHORT.