In this correspondence, we propose an analog network coding scheme with differential modulation (ANC-DM) using amplify-and-forward protocol for bidirectional relay networks when neither the source nodes nor the relay knows the channel state information (CSI). The performance of the proposed ANC-DM scheme is analyzed and a simple asymptotic bit error rate (BER) expression is derived. The analytical results are verified through simulations. It is shown that the BER performance of the proposed differential scheme is about 3 dB away from that of the coherent detection scheme. To improve the system performance, the optimum power allocation between the sources and the relay is determined based on the simplified BER. Simulation results indicate that the proposed differential scheme with optimum power allocation yields 1-2 dB performance improvement over an equal power allocation scheme.