In this paper, a new hierarchical motion estiamtion scheme using the wavelet transformed multi-resolution image layers is proposed. Compared with the full search motion estimation method, the existing hierarchical methods remarkably reduce the amount of the computation but their efficiencies are depreciated by the local minima problem. In order to solve the local minima problem, the multi-resolution image layers are composed using the wavelet transform and the number of layers participated in the motion estimation for a block is determined by considering of its low band energy and higher band energy on the first wavelet transformed layer. The ratio between higher band energy and low band energy of each block is evaluated and in the case of the blocks which include relatively large higher band energy, the motion estimation is carried out in the high resolution layer. Otherwise, all layers are used. The final motion vectors are obtained in the first wavelet transformed layer. So less bits for motion vectors are transmitted, and the decomposition of received image using inverse wavelet transform decreases the blocking effect.