1. An image compression system for compressing an input image from an image source comprising: a binary image generator to generate a binary image representing an estimate of the bi-level information in the input image, wherein the binary image includes edge information in the input image; a post binary image generator coupled to the binary image generator to filter the binary image to produce a processed binary image; a subtractor coupled to the post binary image generator to subtract the processed binary image from the input image to produce a difference image, wherein the processed binary image is subtracted from the input image on a pixel-by-pixel basis; a post subtraction processing mechanism coupled to the subtractor to reduce components in the difference image created by mismatching between binary edges in the processed binary image and the input image to produce a resulting image, wherein portions of edges produced in the difference image due to fractional pixel misalignment between the processed binary image and the input image are removed from the processed binary image to create the resulting image; a binary compressor coupled to the binary image generator to receive the binary image and compress the binary image into compressed binary data; and continuous-tone compressor coupled to the post subtraction processing mechanism to compress the resulting image into compressed continuous-tone data, such that the input image is compressed into compressed binary data and compressed continuous-tone data.