Rheological and intensity (ILS) and dynamic Light scattering (DLS) experiments were performed on semidilute aqueous mixtures of various compositions of oppositely charged and hydrophobically modified polyelectrolytes. The associative phase separation usually observed when mixing oppositely charged polyelectrolytes is restricted to a fairly narrow mixing region when the polymers are hydrophobically modified. Measurements were carried out at mixing ratios both before and after this two-phase area. The rheological properties in the vicinity of the two-phase region show that the elastic response dominates even at fairly low frequencies, indicating the existence of strong intermolecular interactions. The time correlation data obtained from the DLS experiments revealed the existence of two relaxation modes, one single exponential at short times followed by a stretched exponential at longer times. The fast mode is always diffusive, and the extracted hydrodynamic correlation length as well as the static one from ILS increases toward phase separation of the mixture. The slow relaxation time reveals that the dynamics slowed down in the vicinity of phase separation, and the angular dependence of the slow mode is stronger than that of the fast mode and increases gradually as the tao-phase region is approached These features that are attributed to enhanced hydrophobic associations can be rationalized in the framework of the coupling model of Ngai. The fractal dimension, determined from ILS, drops toward phase separation, and this trend suggests a more "open" network structure at this stage.