Guys thanks for all your respond.
ShepherdWeb, You are right that I don't need the update panel for ModalPopup but It do need the UpdatePanel for other postback stuff inside Panel1.
Jason, I'm not so concern with the close button (Button3) to close the modal popup. The issue is regarding the regular postback of any control within my modal panel (not OkControl and CancelControl). Are saying i must apply the suggested workaround on any control that is doing postback within my modal panel? If so, can you give me a snippet on how to clear the controls?
thanks, Ricky