This invention utilizes the fact that a maximum density difference of pixels in a window within a predetermined range including a pixel of interest is large for a character region, and is small for a photograph region. A maximum density difference of an image within the predetermined region is calculated. A quantization error of pixels around the pixel of interest is calculated, and a correction amount is then calculated by proportionally distributing the quantization error in accordance with a feature amount calculated by a feature amount calculator. The correction amount is added to an image signal of the pixel of interest to form a compensation image signal, and the compensation image signal is quantized.