The paper presents a new technique for estimating interframe displacement of small blocks with minimum mean square error, focusing on efficient search algorithms for determining the direction of displacement. The technique is applied to two sets of images, showing an 8-10 dB improvement in interframe variance reduction due to motion compensation. Motion compensation is then used to analyze and design a hybrid coding scheme, achieving a factor of two gain at low bit rates. The method involves dividing an image into smaller rectangular blocks and finding the direction of minimum distortion (DMD) for each block. An efficient 2-D search procedure is described to find the DMD, which is crucial for motion compensation in interframe image coding. The effectiveness of the technique is demonstrated through experimental results, including comparisons with conventional and adaptive hybrid coding schemes. The paper also discusses the application of motion compensation in frame skipping and interpolation, showing significant improvements in signal-to-noise ratio (SNR) and bit rate reduction.The paper presents a new technique for estimating interframe displacement of small blocks with minimum mean square error, focusing on efficient search algorithms for determining the direction of displacement. The technique is applied to two sets of images, showing an 8-10 dB improvement in interframe variance reduction due to motion compensation. Motion compensation is then used to analyze and design a hybrid coding scheme, achieving a factor of two gain at low bit rates. The method involves dividing an image into smaller rectangular blocks and finding the direction of minimum distortion (DMD) for each block. An efficient 2-D search procedure is described to find the DMD, which is crucial for motion compensation in interframe image coding. The effectiveness of the technique is demonstrated through experimental results, including comparisons with conventional and adaptive hybrid coding schemes. The paper also discusses the application of motion compensation in frame skipping and interpolation, showing significant improvements in signal-to-noise ratio (SNR) and bit rate reduction.