One possible option is challenge-response authentication. There a number of variations, but the simplest example is to hash both the hashed password and a nonce on both ends and check the resulting hash[1]. This means that the server only requires that the hashed password is stored, and the client never sends the password in plaintext as it generates the hash itself. As long as the nonce is unique each time, we can prevent replay attacks.

Various schemes introduce a client nonce and server nonce (to prevent man-in-the-middle attacks) or generate a shared secret nonce through methods similar to the Diffie-Hellman key exchange (so attackers can't work out the nonce).

[1] Ensure that h(h(passwd)+nonce) is equal on both ends where h(passwd) is either stored (server) or created by the user providing the plaintext password.

[2] http://en.wikipedia.org/wiki/Challenge-response_authenticati...