Scatterometry takes advantage of the sensitivity exhibited by optical diffraction from periodic structures, and hence is an efficient technique for lithographic process monitoring. Even though the potential of this technique has been known for many years, it is challenging to accurately and quickly extract the multilayer grating overlay from diffraction data. We propose a method to measure the overlay by selecting an optimal measurement design based on the theoretical modeling of differential signal scatterometry overlays. A set of two grating overlay targets are designed with an intentional offset difference between the top and bottom gratings, to maximize the differential signal measurement sensitivity and to minimize the response to the process noise. We model the measurement sensitivity to overlays of two layer gratings, at a fixed wavelength and with a range of azimuth incidence angles from 0 to 180 deg, by means of rigorous diffraction theory. We compare the optical response of the zero- and first-order diffractive overlays. We show that with the appropriate target design and algorithms, scatterometry overlay achieves improved accuracy for future technology nodes.