This paper presents the Discrete Wavelet based fusion techniques for combining perceptually important image features. SPIHT (Set Partitioning in Hierarchical Trees) algorithm is an efficient method for lossy and lossless coding of fused image. This paper presents some modifications on the SPIHT algorithm. It is based on the idea of insignificant correlation of wavelet coefficient among the medium and high frequency sub bands. In RE-MSPIHT algorithm, wavelet coefficients are scaled prior to SPIHT coding based on the sub band importance, with the goal of minimizing the MSE.