A compression technique which preserves edges in compressed pictures is developed. The proposed compression algorithm adapts itself to the local nature of the image. Smooth regions are represented by their averages and edges are preserved using quad trees. Textured regions are encoded using BTC (block truncation coding) and a modification of BTC using look-up tables. A threshold using a range which is the difference between the maximum and the minimum grey levels in a 4*4 pixel quadrant is used. At the recommended value of the threshold (equal to 18), the quality of the compressed texture regions is very high, the same as that of AMBTC (absolute moment block truncation coding), but the edge preservation quality is far superior to that of AMBTC. Compression levels below 0.5-0.8 b/pixel may be achieved.>