H.264/AVC　is　a　powerful　and　high　performance　video　compression　standard.　To　achieve　high　coding　efficiency,　it　employs　many　new　techniques,　such　as　spatial　prediction　in　intra　coding,　adaptive　block　size　motion　compensation,　multiple　reference　pictures,　and　so　on.　Especially　the　complex　intra　and　inter　encoding　modes,　obtain　notable　coding　gains.　The　high　computation　burden　of　mode　decision　procedure　is　a　challenge　to　extensive　application　of　H.264/AVC.　In　this　paper,　a　novel　decision　algorithm　for　intra　and　inter　modes　is　presented　based　on　the　characteristics　of　current　macro-block.　A　fast　adaptive　intra　and　inter　prediction　algorithm　is　provided　for　further　timesaving.　By　avoiding　a　large　amount　of　prediction　processing,　the　computation　complexity　can　be　greatly　reduced.　Experimental　results　indicated　that　the　proposed　algorithm　compared　by　exhaustive　search　algorithm,　can　achieve　reduction　of　67.61%　encoding　time　on　average,　with　a　negligible　PSNR　loss　of　only　0.03dB　and　a　mere　0.86%　bit　rate　increase.　©　2009　IEEE.