I have many entities on the client side that are simulated (their velocities are added to their positions on a per frame basis) and I let them dead reckon themselves. They send updates about where they were last seen and their velocity changes. This works great and other players see this work find. However, after a while these players begin to desync after some time. This is because of latency.

I'd like to know how I can interpolate between states so they appear to be in the correct position. I know where the player was LAST seen and their current velocity but interpolating to the last seen state causes the player to actually move -backwards-. I could not use velocity at all for other clients and simply 'lerp' them towards the appropriate direction but I feel this would cause jaggy movement. What are the alternatives?