Gene network information has been used to improve gene selection in microarray-based studies by selecting marker genes based both on their expression and the coordinate expression of genes within their gene network under a given condition. Here we propose a new network-embedded gene selection model. In this model, we first address the limitations of microarray data. Microarray data, although widely used for gene selection, measures only mRNA abundance, which does not always reflect the ultimate gene phenotype, since it does not account for post-transcriptional effects. To overcome this important (critical in certain cases) but ignored-in-almost-all-existing-studies limitation, we design a new strategy to integrate together microarray data with the information of microRNA, the major post-transcriptional regulatory factor. We also handle the challenges led by gene collaboration mechanism. To incorporate the biological facts that genes without direct interactions may work closely due to signal transduction and that two genes may be functionally connected through multi paths, we adopt the concept of diffusion distance. This concept permits us to simulate biological signal propagation and therefore to estimate the collaboration probability for all gene pairs, directly or indirectly-connected, according to multi paths connecting them. We demonstrate, using type 2 diabetes (DM2) as an example, that the proposed strategies can enhance the identification of functional gene partners, which is the key issue in a network-embedded gene selection model. More importantly, we show that our gene selection model outperforms related ones. Genes selected by our model 1) have improved classification capability; 2) agree with biological evidence of DM2-association; and 3) are involved in many well-known DM2-associated pathways.