System and method for providing lossy compression and contone/bitonal image conversion

A printing system and method performs lossy compression on a bitonal image when the printing system runs out of available memory for processing a page. The lossy compression is performed by dividing the image into subregions and by then determining a contone value for each subregion. Next, each contone value is converted to a bitonal value (i.e. either a "1" or a "0") to achieve lossy compression. In converting the contone values to bitonal values, the system determines the error associated with each conversion and diffuses the error to adjacent subregions using a random perturbation technique to determine the proportion of the error to diffuse to each subregion. When compressing color images, contone values are determined for each color plane. A relative color ordering of each contone value is also stored and used in converting the contone values to bitonal values in order to solve phasing and color alignment problems which would otherwise arise.