In this thesis, we propose a new Digital Image Stabilization (DIS) algorithm that removes involuntary hand movements from the video sequences taken by a camcorder. In contrast to the known DIS techniques in the literature that perform the hand-shake estimation independently on the horizontal and vertical directions, the proposed method further considers the hand shake in the two-dimensional space. Other merits of the proposed DIS methods include: a reduced-complexity multi-resolution motion-estimation method, improved validation criteria for motion vectors, and a saturation-prevention motion correction mechanism. Performance evaluation of the system is conduced based on the perceptual quality and PSNR improvements in conjunction with an H.264 codec. Extensive experimental results substantiate the superiority of the proposed DIS algorithm.