Abstract : In this paper, we present a novel synthesis of two separate aspects of image processing: automatic target recognition/cueing (ATR/ATC) and embedded image compressian. In order to maximize the information content of a transmitted image, an ATR algorithm is used to detect potential areas of interest, and the compression algorithm regionally compresses the image, allocating more bits to the areas of interest. In this fashion, contextual information is retained, albeit at a lower resolution. Examples of the hybrid algorithm are presented.