The standard frame sequence of an MPEG encoded video stream is suitable for normal playback. However, its inter-frame dependency makes it difficult to use it for interactive playback modes, such as play backward, jump or fast forward/backward. A scalable streaming system is required to serve videos to a large number of clients and it should share a single server stream among many clients. However, different interactive clients generally ask for different playback sequences. Hence, their streams cannot be grouped and served together by a single server stream. Therefore, as the frequency of interaction increases, an ordinary scalable streaming service becomes a non-scalable service. In this paper, we have proposed an improved proxy-based streaming scheme over the Internet. We have used video segmentation and hybrid temporal-data-partition scalable video encoding to create suitable playback sequence for interactive playback modes. We have used prefix and smoothing buffers at the proxy to make our scheme scalable. Simulation results show that our streaming scheme remains fully scalable even when all the clients are highly interactive. By using certain part of the available server-proxy network bandwidth and proxy buffers, our streaming scheme can support large numbers of clients. As the level of interaction increases the relative bandwidth and the buffer requirement decreases.