An approach to embedding gray scale images using a discrete wavelet transform is proposed. The proposed scheme enables using signature images that could be as much as 25% of the host image data and hence could be used both in digital watermarking as well as image/data hiding. In digital watermarking the primary concern is the recovery or checking for signature even when the embedded image has been changed by image processing operations. Thus the embedding scheme should be robust to typical operations such as low-pass filtering and lossy compression. In contrast, for data hiding applications it is important that there should not be any visible changes to the host data that is used to transmit a hidden image. In addition, in both data hiding and watermarking, it is desirable that it is difficult or impossible for unauthorized persons to recover the embedded signatures. The proposed scheme provides a simple control parameter that can be tailored to either hiding or watermarking purposes, and is robust to operations such as JPEG compression. Experimental results demonstrate that high quality recovery of the signature data is possible.