Finding reliable gene markers for accurate disease classification is very challenging due to a number of reasons, including the small sample size of typical clinical data, high noise in gene expression measurements, and the heterogeneity across patients. In fact, gene markers identified in independent studies often do not coincide with each other, suggesting that many of the predicted markers may have no biological significance and may be simply artifacts of the analyzed dataset. To nd more reliable and reproducible diagnostic markers, several studies proposed to analyze the gene expression data at the level of groups of functionally related genes, such as pathways. Given a set of known pathways, these methods estimate the activity level of each pathway by summarizing the expression values of its member genes and using the pathway activities for classification. One practical problem of the pathway-based approach is the limited coverage of genes by currently known pathways. As a result, potentially important genes that play critical roles in cancer development may be excluded. In this thesis, we first propose a probabilistic model to infer pathway/subnetwork activities. After that, we developed a novel method for identifying reliable subnetwork markers in a human protein-protein interaction (PPI) network based on probabilistic inference of subnetwork activities. We tested the proposed methods based on two independent breast cancer datasets. The proposed method can efficiently find reliable subnetwork markers that outperform the gene-based and pathway-based markers in terms of discriminative power, reproducibility and classification performance. The identified subnetwork markers are highly enriched in common GO terms, and they can more accurately classify breast cancer metastasis compared to markers found by a previous method.