New methods to enhance and improve algorithm performance and data analysis are being developed at NIST for overlay measurement applications. Both experimental data and improved theoretical optical scattering models have been used for the study. We have identified error sources that arise from (i) the optical cross talk between neighboring lines on an overlay target (ii) the selection of the window size used in the auto-correlation and (iii) the portion of the intensity profile that is used in the overlay calculation (defined as a truncated profile). Further, we suggest methods to optimally minimize these error sources. We also present a relationship between tool-induced shift (TIS) and the asymmetry in the intensity profile.© (2003) COPYRIGHT SPIE--The International Society for Optical Engineering. Downloading of the abstract is permitted for personal use only.