The main objective of this thesis is to propose a distributed optimal traffic engineering algorithm for connectionless networks. B. A. Movsichoff proposed an optimal traffic engineering algorithm for rate allocation and load balancing in connectionless networks. In this algorithm, Sliding Mode Control is used to maximize network utilization, subject to network constraints and some traffic control laws are derived. In this algorithm, all adaptation laws consider congestion only at the current node and the immediate downstream node, and congestion at other downstream nodes is not directly incorporated in the algorithm. In this thesis Sliding Mode Control is applied to network utilization problem considering the congestion in all downstream nodes. It is shown that the adaptation laws ensure the convergence to the optimum state of the problem and optimal rate allocation may be achieved. Moreover, the proposed distributed control laws are stable in the presence of link or node failures and the algorithm smoothly redistributes traffic in failure cases.