  We propose an auto-compensating differential phase shift scheme for quantum
key distribution with a high key-creation efficiency, which skillfully makes
use of automatic alignment of the photon polarization states in optical fiber
with modified Michelson interferometers composed of unequal arms with Faraday
mirrors at the ends. The Faraday-mirrors-based Michelson interferometers not
only function as pulse splitters, but also enable inherent compensation of
polarization mode dispersion in the optic-fiber paths at both Alice's and Bob's
sites. The sequential pulses encoded by differential phase shifts pass through
the quantum channel with the same polarization states, resulting in a stable
key distribution immune to the polarization mode dispersion in the quantum
channel. Such a system features perfect stability and higher key creation
efficiency over traditional schemes.
