In this paper, a H.264 compatible spatially scalable video coding method with in-band prediction is proposed which taking advantages from both the high coding efficiency of H.264 coding scheme and the attractive performance of in-band overcomplete discrete wavelet transform (ODWT) in waveletdomain motion estimation and motion compensation. Four MV prediction modes are proposed for INTER prediction of high frequency subbands. The intra prediction modes of H.264 are also simplified for each high band according to the directional features inherited inside. Finally, a H.264 compatible scheme based on one of the MV prediction modes is presented to provide better tradeoff among standard compatibility, low complexity and high performance.