Abstract: A video image compression and decompression system and method operates on frame blocks and uses multiple compression stages to select a best compression method for use with the associated block. The best compression method is selected by performing motion compensation compression on each block and assigning a quantitative image quality rating to the compressed block. During a second compression stage, the blocks having the lowest image quality ratings are selected and compressed using a vector quantization method which improves the quality of the block representation thereby improving the overall image quality. During each compression stage, compression dictionaries are built and dynamically updated. After the compression method is selected for each block, a compressed image frame is built.