Damage detection using Lead-Zirconate-Titanate (PZT) transducers for exciting guided waves was investigated. The analytical model for guided wave excitation using PZT transducers was used in a Finite Element Model for simulating guided waves in a thin aluminum plate with various defect depths. The fundamental symmetric (S0) mode was excited, and four sensors were placed for detecting both the reflected and transmitted waves from defects. The model was used to conduct a parametric study of the effect of the PZT adhesive bonding on the measured signal and hence probability of detection (POD).The model was also used for optimizing signal analysis algorithms, particularly for the case of multiple overlapping modes due to mode conversion from defects. A mode decomposition algorithm is proposed for separating the reflected/transmittedS0mode from the mode converted antisymmetric mode (A0). The signal processing algorithms were optimized to maximize the POD.