We propose a novel dynamic bandwidth allocation algorithm to reduce congestion and improve quality of service at network nodes. The algorithm is based on a bandwidth formula which models the traffic bandwidth in the wavelet domain, and a prediction scheme based on the independent wavelet model to predict wavelet coefficients needed by the bandwidth formula in a real-time traffic scenario. Our simulation results show that arbitrarily small cell loss ratio with limited maximum cell delay may be achieved. The algorithm is ideal for high speed networks and is fully compatible with technologies such as ATM and MPLS.