The discrete wavelet transform (DWT) has been widely used in scalable video coding for its advantages in multi-resolution analysis and subband decomposition. In this paper, a spatially scalable video coding system based on H.264 coding method and in-band overcomplete discrete wavelet transform (ODWT) technique is proposed, which integrates the good compression performance of H.264 in low frequency domain with the efficient motion estimation of in-band ODWT in wavelet domain. Intra prediction, coefficients scan manner and inter prediction are improved to overcome the inefficiency of H.264 coding in high frequency subbands caused by different pixels distribution properties. Through series of subband analysis and statistical data retrieval for the three high frequency decompositions, intra prediction directions are optimized and three subsets of prediction mode are presented for the three high subbands respectively. They save over 30% bits for intra mode with similar performance. Moreover, novel zigzag scan tables are proposed to improve the coding efficiency by utilizing the oriented frequency characteristics of each high band. To inter prediction, an adaptive motion estimation method is proposed in which the motion information of low band is adaptively and effectively utilized to achieve much more accurate motion vector and more efficient motion compensation in high bands coding. Experimental results show that, all of the proposed methods endue the spatially scalable video coding system with over 0.4 dB gain in PSNR and 10.4% in rate reduction.