This paper presents a novel macroblock mode decision algorithm for inter-frame prediction based on machine learning techniques to be used as part of a very low complexity MPEG-2 to H.264 video transcoder. Since coding mode decisions take up the most resources in video transcoding, a fast macro block (MB) mode estimation would lead to reduced complexity. The proposed approach is based on the hypothesis that MB coding mode decisions in H.264 video have a correlation with the distribution of the motion compensated residual in MPEG-2 video. We use machine learning tools to exploit the correlation and derive decision trees to classify the incoming MPEG-2 MBs into one of the 11 coding modes in H.264. The proposed approach reduces the H.264 MB mode computation process into a decision tree lookup with very low complexity. The proposed transcoder is compared with a reference transcoder comprised of a MPEG-2 decoder and an H.264 encoder. Our results show that the proposed transcoder reduces the H.264 encoding time by over 95% with negligible loss in quality and bitrate.