Summary: A sensitivity-based methodology for improving the finite element model of a given structure using test modal data and a few sensors is presented. The proposed method searches for both the location and sources of the mass and stiffness errors and does not interfere with the theory behind the finite element model while correcting these errors. The updating algorithm is derived from the unconstrained minimization of the squared \(L_ 2\) norms of the modal dynamic residuals via an iterative two-step staggered procedure. At each iteration, the measured mode shapes are first expanded assuming that the model is error free, then the model parameters are corrected assuming that the expanded mode shapes are exact. The numerical algorithm is implemented in an element-by-element fashion and is capable of ``zooming'' on the detected error locations. Several simulation examples which demonstrate the potential of the proposed methodology are discussed.