We have analyzed the gene-targeting frequencies and recombination products generated by a series of vectors which target the hprt locus in embryonic stem cells and found the existence of alternative pathways that depend on the location of the double-strand break within the vector. A double-strand break in the targeting homology was found to increase the targeting frequency compared with a double-strand break at the edge of or outside the target homology; this finding agrees with the double-strand break repair model proposed for Saccharomyces cerevisiae. Although a double-strand break in the homology is important for efficient targeting, observations reported here suggest that the terminal ends are not always directly involved in the initial recombination event. Short terminal heterologous sequences which block the homologous ends of the vector may be incorporated into the target locus. A modification of the double-strand break repair model is described to account for this observation.