Damage identification problem involves detection, localization and assessment of the extent of damage in a structure so that the remaining life could be predicted. Visual or nondestructive experimental damage detection methods such as ultrasonic and acoustic emission ones are based on a local evaluation in easily accessible areas, and therefore, they require a certain prior knowledge of the damage distribution. With the purpose of providing global damage detection methods applicable to complex structures, techniques based on modal testing and signal processing constitute a promising approach for damage identification. These methods examine changes in the dynamic characteristics of structure, such as natural frequencies and mode shapes to detect the structural damage. Modal parameters including natural frequencies, mode shapes and damping ratios are known as essential parameters for analyzing the dynamic behavior of a structure. This paper deals with identification of modal parameters of structures using a two-step algorithm. In the proposed method, free vibration response of structure is decomposed using wavelet packet transform. Then, decomposed signal, which has the same energy with the main signal, is used for modal parameter identification using peak picking method. The performance of the proposed method is verified against the results of an experimental benchmark problem.