referring now to the drawings and to fig1 and 2 in particular , there are shown an isometric view and a plan view of the miniature interferometric optical encoder 10 , constructed according to the teachings of the invention . optical encoder unit 10 includes encoder optics block 12 , rotary grating 14 , first and second thermo - electric ( te ) coolers 16 and 18 , heat sink 22 , end cover 24 , and cap 26 . encoder optics block 12 includes and has disposed thereon laser diode module 32 which includes laser diode chip source 34 and photo diode 36 . encoder optics block 12 further includes and has disposed thereon first and second pinholes 38 and 42 , first and second mirrors 44 and 46 , first and second wave plates 48 and 52 , first light shield 54 ( fig1 ) and second and third lightshields 56 , 58 ( fig2 ), beam splitter plate 62 , polarizing coated prism 64 and first and second photodetectors with amplifiers 66 and 68 . encoder optics block 12 further includes and has disposed thereon temperature sensor 72 for regulating thermo - electric coolers 16 and 18 , a printed circuit board ( pcb ) 74 dedicated to the photodetector amplifiers 66 and 68 respectively and a miscellaneous component wiring printed circuit board ( pcb ) 76 . thermal electric coolers 16 , 18 respectively , operate to transfer heat in either direction between optics block 12 and heat sink 22 , to provide for regulating and stabilizing the temperature of optics block 12 . referring now to fig2 and 3 , there are illustrated the operating principles of the miniature grating interferometric rotary encoder 10 , constructed according to the teachings of the invention . referring now in particular to fig2 in operation , the horizontally polarized light output 102 from laser diode chip source 34 passes through pinhole 38 , light shield 58 and quarter wave plate 48 , by which time the horizontally polarized light output 102 then becomes near circularly polarized . at this stage , the laser light polarization cannot be all along or perpendicular to the grating groove directions but rather must be partially along or perpendicular to the grating groove directions . this is essential in order to get two phase delayed optical outputs . theoretically any other polarization direction will work , but in order to generate two equal amplitude outputs , it is preferred to use either a circularly polarized or linearly polarized direction with 45 ° orientation . referring now in particular to fig3 the surface normal reference line is shown at n , the spatially and temporally coherent circularly polarized light 103 illuminates reflective radial grating 14 . the grating 14 diffracts the incident laser beam into one pair of beams of first order 106 and 108 , and possibly other beams of higher order depending on wavelength and grating constant . the zeroth order beam 104 is reflected back and mostly blocked by the pinhole 38 due to the divergence of the beam . the diffraction angle θ d relative to the surface normal reference line n is given by where , m is the diffraction order number , θ in is the angle of the incident laser beam with respect to the surface normal reference line n of the grating surface , λ is the laser wavelength , and d is the grating constant . if d is small enough ( d & lt ; 2λ ), only orders with m =− 1 and m =+ 1 are diffracted , producing two diffracted beams 106 and 108 , at angles θ = θ − 1 and θ = θ + 1 , respectively . in our case , θ in = 0 °, d = 0 . 95 μm , and θ d =+ 45 °. all diffracted beams are mutually coherent both spatially and temporally and have different phase changes upon diffraction . they are able to interfere with one another once they are overlapped along the same direction . when the grating ( 14 ) moves along the direction of the arrow for a distance d within certain time interval t , the phase difference φbetween beams 106 and 108 is modulated by the grating motion , therefore the grating movement modulates the phase variation of the two beams and thereby produces moving interference patterns . in order to produce interference effects , the two diffracted beams , 106 and 108 , must be recombined . this is accomplished by the two mirrors 44 , 46 ( fig2 ) respectively , and by beam splitter plate 62 that partially transmits and partially reflects incident light beams 106 and 108 respectively . the interference occurs when the two beams 106 and 108 are recombined at beam splitter plate 62 whereby the two beams 106 and 108 are made to be as collinear as possible . the interference fringe separation l depends on the angle δ between the two overlapped beams which is given by a small area of the interference fringe on one side of the beam splitter plate transmits through pinhole 42 . a polarizing prism 64 having a polarizing coating on the diagonal side 65 transmits light polarized in a first predetermined direction and reflects light polarized in a second predetermined direction and thereby splits the recombined beam into first and second orthogonal polarized beams . first and second photodetectors 66 and 68 , each having their own built in amplifiers intercept the first and second orthogonal polarized beams respectfully and convert the optical signals into voltage signals suitable for counting and other electronic processing . the electronic processing of the invention is set forth with reference to fig4 and 5 wherein there are illustrated a block diagram of the encoder electronics and the interconnections with the output of the encoder unit operating components and a schematic diagram of the a + b ; a − b phase tuning circuit . referring to fig4 the phase a and phase b blocks are the raw signals from detectors 66 and 68 of encoder 10 . these encoder raw signals are then amplified through two amplifier blocks 202 , 204 , with output a and b . outputs a and b are then fed into a + b , a − b circuit blocks 206 , 208 which generate output a ′ and b ′ with exact 90 ° degree phase difference . the normalization circuit blocks 212 , 214 generate stable a ″ and b ″ signals which are independent of the input signal variations . signals a ″ and b ″ are then fed into interpolation stage 216 , 218 which generate interpolated high resolution signals a ′″ and b ′″. signals a ′″ and b ′″ are then fed into digitizer blocks 222 , 224 respectively , and are then fed into the display counter block 226 . the purpose and function of the second waveplate 52 is to bring the phase delay between signals a and b as close to 90 as feasible with a wave plate . this phase delay adjustment by the second waveplate 52 is important because the a + b , a − b circuits 206 , 208 respectfully , ( which generate output a ′ and b ′ with exact 90 ° degree phase difference ) will not work properly , that is they will not be able to compensate when the initial phase difference between signals a and b is small ( such as when the phase difference approximates 0 ° or 180 °). the reason for this difficulty in compensation by the a + b , a − b circuits 206 , 208 respectfully , is that the dc offsets of a + b will be much larger ( or much smaller depending on the phase difference ) than that of a − b or a − k * b , thus one channel might need tremendous gain to bring the two signals a ′ and b ′ equal . but in all practicality , an amplification circuit can only provide gain to a certain reasonable extent . in addition to the high gain problem there is a noise problem associated with high gain ; one channel ( that requiring high gain ) will be much noisier than the other channel . therefore the circuit will not work properly when the input signals &# 39 ; phase difference is so small such that the amplification circuit cannot provide enough gain . the invention therefore adds waveplate 52 in one beam path to change the phase difference between the signals a and b closer to 90 °. there is no stringent requirement on the wave plate orientation as long as the phase difference is small such that the circuit can provide enough gain to approximate 90 ° phase difference with an acceptable signal / noise ratio . by combining the waveplate 52 and the phase tuning circuits 206 , 208 respectively , the invention teaches a simple method and the required apparatus to get 90 ° phase delayed signals . referring now to fig5 there is shown a schematic diagram of phase tuning circuit 230 , including three operational amplifiers ( e . g . op 27 ) shown at adder blocks 232 , 234 respectively , and inverter with gain block 236 which are interconnected as shown to provide a + b and a − k * b functions . when the two channels a and b have the same amplitudes a 0 but non − 90 ° phase difference , a method of combining a and b to generate where θ is the overall phase angle of one channel , and δ is the phase angle difference between the two channels . the new outputs a ′ and b ′ have exactly 90 ° phase difference . but this method does not apply to cases where the amplitudes of a and b are not equal , a 0 ≠ b 0 , which is common in real applications . we add a gain factor k in one of the channels , e . g . b ′= a − k * b instead of a − b , to expand the phase tuning range of this circuit . in this way the circuit can handle with non - 90 ° phase difference and unequal amplitudes . by adjusting the gain factor k , the phase difference between a ′ and b ′ can be easily tuned to 90 °. referring now to fig5 the gain factor k is adjusted by varying the pot r 8 shown at 242 , which may for example be a 20k variable resister . pot r 7 shown at 244 , which may for example be a 50k variable resister , is adjusted to match the channel b ′ output level with that of channel a ′. assembly : the assembly procedure is mount or assemble the discreet encoder components on encoder cold block 12 in the following order : first the laser diode module 32 and mirrors 44 , 46 are mounted on encoder optics / cold block 12 . second , mount beam splitter plate 62 without fixing its position . third , assemble first and second thermoelectric coolers 16 , 18 respectively and radial grating 14 on he at sink 22 , and attach the heat sink 22 to encoder optics / cold block 12 with the thermoelectric coolers 16 , 18 disposed there between . forth , adjust encoder optics / cold block 12 &# 39 ; s position relative to heat sink 22 and attached radial grating 14 while monitoring the interference pattern of recombined beam 70 until a good pattern is observed . the fifth and final assembly step is to fine tune the beam splitter plate 62 &# 39 ; s angular position to get closer to the center of the interference pattern i . e . to provide the largest interference pattern . the machined encoder optics / cold block 12 and heat sink 22 have high enough accuracy to provide an accurate alignment structure for the encoder constructed according to the teachings of the invention . the accuracy of the typical cnc machine is about a few micrometers and angular accuracy is about 1 milli - radians for current encoder size . the alignment tolerance required for a grating interferometer using a collimated laser beam can be estimated to be where δ is the angle that produces the interference pattern spacing d . this equation was developed in patent application ser . no . 08 / 728 , 625 , entitled “ miniature interferometric rotary encoder ” assigned to the same assignee as the present invention , which is hereby referred to and incorporated herein . this equation gives an estimate on the angular alignment error tolerance . for the laser wavelength of μ = 0 . 67 μm and d = 1 mm , the interfering beams must be co - linear to a precision & lt ; 0 . 67 mill - radians . based on the cnc machined structure and fine tuning of the beam splitter plate 62 , plus the beam divergence , all the errors generated when the laser diode module 32 and mirrors 44 , 46 are mounted on encoder optics / cold block 12 can be compensated for by fine tuning the beam splitter plate 62 . this is an advantage over the related art in that this mounting procedure dispenses with the necessity for accurate mounting tolerances during the assembly process when the laser diode module 32 and mirrors 44 , 46 are mounted on encoder optics / cold block 12 . what has been disclosed and described then is the ability to put the laser diode chip source 34 for generating a beam of light directly on the optical encoder means rather than bringing the light source in by means of a fiber optic cable . this was accomplished by using a chip for the laser diode module 32 directly , including both the laser diode chip source 34 and the photo diode 36 , without a conventional surrounding enclosure . the overall size and in particular the footprint of optics / cold block 12 was reduced significantly . furthermore , disposing photo diode 36 at 110 ° to the laser diode chip source 34 &# 39 ; s output axis reduces reflection light to the laser diode chip 36 . the size of the laser diode module 32 may be further reduced by integrating the laser diode 34 and the photo diode 36 on one chip module 30 as shown in fig6 with approximate sizes of ½ millimeter wide by less than one millimeter long . this can reduce the encoder &# 39 ; s length , width and height because the laser diode 34 and the photo diode 36 are the limiting factors for the size of the encoder when they are installed insitu according to the teachings of the invention . the electrical leads for laser module chip 30 may be disposed through chip 30 by standard chip fabrication . prism 37 is used to couple lazer diode 34 &# 39 ; s output to photo detector 36 . additional embodiments of the invention include the elimination of quarter wave plate 48 . the purpose of quarter wave plate 48 is to generate a circular beam of polarized light before it reaches and strikes grating 14 . this can also be accomplished by using a linearly polarized light with polarization oriented along and at 45 ° relative to the groove direction of grating 14 . this can be accomplished by a 45 ° rotation of laser chip 34 along laser output axis 76 as shown in fig6 and 6a . another embodiment to replace laser diode 34 and photodiode 36 of fig2 is shown in fig6 b . referring now to fig6 b , laser module 250 includes photodiode 252 , laser ( vcsel ) diode 254 , and prism 256 . the laser polarization state can be adjusted by rotating the vcsel laser diode 254 relative to prism 256 , thereby providing a readily adjusted polarization state in a compact laser diode module 250 . referring now to fig7 there is shown how the prism 64 with polarizing coating 65 can be eliminated by coating a polarizing film directly on photo detector 66 ( fig3 ) with a suitable polarizing coating film . incident light beam 70 has two phase delayed optical components of light , p & amp ; s . photo detector 114 has a polarizing coating 110 which transmits the p component of light into photo detector 114 and reflects the s component of light 118 over to photo detector 122 . photo detector 122 then has anti - reflection coating 124 transmitting s component of light into photo detector 122 . in this manner , photo detector 114 detects and generates a voltage output for p component of incident beam 70 and photo detector 122 gives a voltage output relative to s component of incident light beam 70 . this will eliminate prism 64 while still detecting both phase delayed optical components of incident light beam 70 . this will reduce the number of optical components inside and mounted on optic block 12 . referring now to fig8 there is shown another embodiment of photo detector 114 of fig7 wherein now polarized coating 110 of fig7 is now replaced by small area detector 132 disposed on a support . this small area detector 132 functions as a pinhole and detector to detect the p polarization component and reflects the s component of incident beam 70 over to photo detector 122 . detector 132 then combines three functions ( pinhole , polarization detector , polarization reflector ) of pinhole 42 , prism 64 and photodetector 66 ( see fig2 ). in this maimer , pinhole 42 and prism 64 ( fig2 ) can be eliminated and again optics / cold block 12 will have fewer components to be mounted . referring now to fig9 and 9a , there is shown photo detector 145 having a two element array 145 a and 145 b respectively , with built - in amplifiers . due to the limitations of the wire bonding configurations , it is preferable to bond the photodetector chips in one plane . that is why both elements 145 a and 145 b are shown disposed in the same plane 146 . there is also shown on top of plane 146 disposed a right angle prism 142 having black painted coating 142 a defining opening 142 or an additional pinhole ( not shown ) and rhombic prisms 144 having a polarizing coating 152 on one face 144 a . polarized laser beam 147 will be reflected by the polarizing coating 152 to one photo detector 145 a and the other polarization beam 148 will transmit through this small coated area 152 of face 144 a and be totally internally reflected at face 144 b of the prism to the second photo detector 145 b . this combination will eliminate one photo detector , one prism , and one pinhole from having to be mounted on encoder optics / cold block 12 . right angle prism 142 and rhombic prism 144 must be made of the same material to prevent diffraction of the light polarized beam 147 .