Analyzing sequence data has become increasingly important recently in the area of biological sequences, text documents, web access logs, etc. In this paper, we investigate the problem of clustering sequences based on their sequential features. As a widely recognized technique, clustering has proven to be very useful in detecting unknown object categories and revealing hidden correlations among objects. One difficulty that prevents clustering from being performed extensively on sequence data (in categorical domain) is the lack of an effective yet efficient similarity measure. Therefore, we propose a novel model (CLUSEQ) for sequence cluster by exploring significant statistical properties possessed by the sequences. The conditional probability distribution (CPD) of the next symbol given a preceding segment is derived and used to characterize sequence behavior and to support the similarity measure. A variation of the suffix tree, namely probabilistic suffix tree, is employed to organize (the significant portion of) the CPD in a concise way. A novel algorithm is devised to efficiently discover clusters with high quality and is able to automatically adjust the number of clusters to its optimal range via a unique combination of successive new cluster generation and cluster consolidation. The performance of CLUSEQ has been demonstrated via extensive experiments on several real and synthetic sequence databases.