We consider a simple modification to classical block truncation coding (BTC) that may permit the use of larger block sizes for some applications. although BTC is favored for its simple encoding and decoding, its disadvantage is the relatively low compression ratio achieved. Bit rates on the order of 1 bit/pixel require large block sizes, which generally produce unacceptable degradation. However, these undesirable effects can be reduced considerably by incorporating error diffusion, which is a technique used in halftoning, into the BTC encoding stage. >