A motion compensation image processing apparatus and method for generating motion vectors that represent image motion between a pair of input images from which an output image is derived by motion compensated interpolation. A plurality of motion vectors are generated for each pixel of the output image and it is determined whether respective test blocks of each of the pair of input images, pointed to by each of the plurality of motion vectors, lie partially outside their respective input images. If one or both of the test blocks lies partially outside its respective input image, the degree of correlation between the test blocks is detected by performing a first correlation test on parts of the test blocks lying inside their respective input images. However, if both of the test blocks lie wholly inside their respective input image, the degree of correlation between the test blocks is detected by performing a second correlation test. The motion vector having the highest degree of correlation between the test blocks is selected for motion compensation interpolation.