In this paper, a new algorithm for alleviating overloads in power networks by the use of line power tracing and sensitivity is proposed to perform line switching and bus separation effectively. Also, a new bus separation index based on line power tracing is presented to find the bus to be separated for relieving overloads effectively. By applying the sensitivity of the line flow with respect to the change of the line impedance, both switching-on and switching-off of the lines for alleviating overloads in power networks are performed systematically at once. The number of the considered cases for line switching and bus separation can be greatly reduced and the best combination of line switching and bus separation can be acquired efficiently by the use of the sensitivity and the bus separation index. In order to show the effects of this algorithm, it is applied to a small scale power system of IEEE 39-bus system and practical power systems of KEPCO.