diff --git a/pandatool/src/egg-palettize-old/Sources.pp b/pandatool/src/egg-palettize-old/Sources.pp
index 54a0035cf6..b0de94a466 100644
--- a/pandatool/src/egg-palettize-old/Sources.pp
+++ b/pandatool/src/egg-palettize-old/Sources.pp
@@ -1,22 +1,22 @@
-//  #begin bin_target
-//    #define TARGET egg-palettize-new
-//    #define LOCAL_LIBS \
-//      eggbase progbase
-//    #define OTHER_LIBS \
-//      egg:c linmath:c putil:c express:c pnmimage:c pnmimagetypes:c \
-//      pandaegg:m panda:m pandaexpress:m \
-//      dtoolutil:c dconfig:c dtool:m pystub
+#begin bin_target
+  #define TARGET egg-palettize-new
+  #define LOCAL_LIBS \
+    eggbase progbase
+  #define OTHER_LIBS \
+    egg:c linmath:c putil:c express:c pnmimage:c pnmimagetypes:c \
+    pandaegg:m panda:m pandaexpress:m \
+    dtoolutil:c dconfig:c dtool:m pystub
 
-//    #define SOURCES \
-//      attribFile.cxx attribFile.h config_egg_palettize.cxx \
-//      eggPalettize.cxx eggPalettize.h \
-//      palette.cxx palette.h paletteGroup.cxx \
-//      paletteGroup.h pTexture.cxx pTexture.h sourceEgg.cxx \
-//      sourceEgg.h string_utils.cxx string_utils.h \
-//      textureEggRef.cxx textureEggRef.h textureOmitReason.h \
-//      texturePacking.cxx \
-//      texturePacking.h userAttribLine.cxx userAttribLine.h
+  #define SOURCES \
+    attribFile.cxx attribFile.h config_egg_palettize.cxx \
+    eggPalettize.cxx eggPalettize.h \
+    palette.cxx palette.h paletteGroup.cxx \
+    paletteGroup.h pTexture.cxx pTexture.h sourceEgg.cxx \
+    sourceEgg.h string_utils.cxx string_utils.h \
+    textureEggRef.cxx textureEggRef.h textureOmitReason.h \
+    texturePacking.cxx \
+    texturePacking.h userAttribLine.cxx userAttribLine.h
 
-//    #define INSTALL_HEADERS
+  #define INSTALL_HEADERS
 
-//  #end bin_target
+#end bin_target
diff --git a/pandatool/src/egg-palettize-old/texturePacking.cxx b/pandatool/src/egg-palettize-old/texturePacking.cxx
index 5ddb7d9e16..5a0fb8dc70 100644
--- a/pandatool/src/egg-palettize-old/texturePacking.cxx
+++ b/pandatool/src/egg-palettize-old/texturePacking.cxx
@@ -573,7 +573,7 @@ transfer() {
 
   } else {
     // Should we scale it?
-    if (nx != image->get_x_size() && ny != image->get_y_size()) {
+    if (nx != image->get_x_size() || ny != image->get_y_size()) {
       nout << "Resizing " << new_filename << " to " 
 	   << nx << " " << ny << "\n";
       PNMImage *new_image =
diff --git a/pandatool/src/egg-palettize/Sources.pp b/pandatool/src/egg-palettize/Sources.pp
index 4c59f103db..1016dd4c46 100644
--- a/pandatool/src/egg-palettize/Sources.pp
+++ b/pandatool/src/egg-palettize/Sources.pp
@@ -1,30 +1,30 @@
-#begin bin_target
-  #define TARGET egg-palettize
-  #define LOCAL_LIBS \
-    eggbase progbase
-  #define OTHER_LIBS \
-    egg:c loader:c linmath:c putil:c express:c pnmimage:c pnmimagetypes:c \
-    pandaegg:m panda:m pandaexpress:m \
-    dtoolutil:c dconfig:c dtool:m pystub
+//  #begin bin_target
+//    #define TARGET egg-palettize
+//    #define LOCAL_LIBS \
+//      eggbase progbase
+//    #define OTHER_LIBS \
+//      egg:c loader:c linmath:c putil:c express:c pnmimage:c pnmimagetypes:c \
+//      pandaegg:m panda:m pandaexpress:m \
+//      dtoolutil:c dconfig:c dtool:m pystub
 
-  #define SOURCES \
-    config_egg_palettize.cxx config_egg_palettize.h \
-    destTextureImage.cxx destTextureImage.h \
-    eggFile.cxx eggFile.h eggPalettize.cxx eggPalettize.h \
-    filenameUnifier.cxx filenameUnifier.h \
-    imageFile.cxx imageFile.h omitReason.cxx omitReason.h \
-    paletteGroup.h paletteGroup.cxx \
-    paletteGroups.h paletteGroups.cxx paletteImage.h paletteImage.cxx \
-    palettePage.cxx palettePage.h \
-    palettizer.cxx palettizer.h \
-    sourceTextureImage.cxx sourceTextureImage.h string_utils.cxx \
-    string_utils.h textureImage.cxx textureImage.h \
-    texturePlacement.cxx texturePlacement.h \
-    texturePosition.cxx texturePosition.h \
-    textureProperties.cxx textureProperties.h textureReference.cxx \
-    textureReference.h textureRequest.h textureRequest.cxx \
-    txaFile.cxx txaFile.h \
-    txaLine.cxx txaLine.h
+//    #define SOURCES \
+//      config_egg_palettize.cxx config_egg_palettize.h \
+//      destTextureImage.cxx destTextureImage.h \
+//      eggFile.cxx eggFile.h eggPalettize.cxx eggPalettize.h \
+//      filenameUnifier.cxx filenameUnifier.h \
+//      imageFile.cxx imageFile.h omitReason.cxx omitReason.h \
+//      paletteGroup.h paletteGroup.cxx \
+//      paletteGroups.h paletteGroups.cxx paletteImage.h paletteImage.cxx \
+//      palettePage.cxx palettePage.h \
+//      palettizer.cxx palettizer.h \
+//      sourceTextureImage.cxx sourceTextureImage.h string_utils.cxx \
+//      string_utils.h textureImage.cxx textureImage.h \
+//      texturePlacement.cxx texturePlacement.h \
+//      texturePosition.cxx texturePosition.h \
+//      textureProperties.cxx textureProperties.h textureReference.cxx \
+//      textureReference.h textureRequest.h textureRequest.cxx \
+//      txaFile.cxx txaFile.h \
+//      txaLine.cxx txaLine.h
 
-#end bin_target
+//  #end bin_target
 
diff --git a/pandatool/src/egg-palettize/eggPalettize.cxx b/pandatool/src/egg-palettize/eggPalettize.cxx
index 21235c6a56..938f43b79b 100644
--- a/pandatool/src/egg-palettize/eggPalettize.cxx
+++ b/pandatool/src/egg-palettize/eggPalettize.cxx
@@ -340,6 +340,12 @@ run() {
     pal->process_command_line_eggs();
   }
 
+  if (_force_optimal) {
+    // If we're asking for optimal packing, this also implies we want
+    // to resize the big empty palette images down.
+    pal->optimal_resize();
+  }
+
   if (_redo_eggs) {
     if (!pal->read_stale_eggs(_redo_all)) {
       okflag = false;
diff --git a/pandatool/src/egg-palettize/paletteGroup.cxx b/pandatool/src/egg-palettize/paletteGroup.cxx
index 401d92827f..87cff46926 100644
--- a/pandatool/src/egg-palettize/paletteGroup.cxx
+++ b/pandatool/src/egg-palettize/paletteGroup.cxx
@@ -306,6 +306,21 @@ write_image_info(ostream &out, int indent_level) const {
   }
 }
 
+////////////////////////////////////////////////////////////////////
+//     Function: PaletteGroup::optimal_resize
+//       Access: Public
+//  Description: Attempts to resize each PalettteImage down to its
+//               smallest possible size.
+////////////////////////////////////////////////////////////////////
+void PaletteGroup::
+optimal_resize() {
+  Pages::iterator pai;
+  for (pai = _pages.begin(); pai != _pages.end(); ++pai) {
+    PalettePage *page = (*pai).second;
+    page->optimal_resize();
+  }
+}
+
 ////////////////////////////////////////////////////////////////////
 //     Function: PaletteGroup::reset_images
 //       Access: Public
diff --git a/pandatool/src/egg-palettize/paletteGroup.h b/pandatool/src/egg-palettize/paletteGroup.h
index ad1e1f4ab4..984d3adc89 100644
--- a/pandatool/src/egg-palettize/paletteGroup.h
+++ b/pandatool/src/egg-palettize/paletteGroup.h
@@ -59,6 +59,7 @@ public:
   void place_all();
 
   void write_image_info(ostream &out, int indent_level = 0) const;
+  void optimal_resize();
   void reset_images();
   void update_images(bool redo_all);
 
diff --git a/pandatool/src/egg-palettize/paletteImage.cxx b/pandatool/src/egg-palettize/paletteImage.cxx
index d56168a344..c934c6c98b 100644
--- a/pandatool/src/egg-palettize/paletteImage.cxx
+++ b/pandatool/src/egg-palettize/paletteImage.cxx
@@ -257,6 +257,113 @@ check_solitary() {
   }
 }
 
+////////////////////////////////////////////////////////////////////
+//     Function: PaletteImage::optimal_resize
+//       Access: Public
+//  Description: Attempts to resize the palette image to as small as
+//               it can go.
+////////////////////////////////////////////////////////////////////
+void PaletteImage::
+optimal_resize() {
+  if (is_empty()) {
+    return;
+  }
+
+  bool resized_any = false;
+  bool success;
+  do {
+    success = false;
+    nassertv(_x_size > 0 && _y_size > 0);
+
+    // Try to cut it in half in both dimensions, one at a time.
+    if (resize_image(_x_size, _y_size / 2)) {
+      success = true;
+      resized_any = true;
+    }
+    if (resize_image(_x_size / 2, _y_size)) {
+      success = true;
+      resized_any = true;
+    }
+  } while (success);
+
+  if (resized_any) {
+    nout << "Resizing " 
+	 << FilenameUnifier::make_user_filename(get_filename()) << " to "
+	 << _x_size << " " << _y_size << "\n";
+  } 
+}
+
+////////////////////////////////////////////////////////////////////
+//     Function: PaletteImage::resize_image
+//       Access: Public
+//  Description: Attempts to resize the palette image, and repack all
+//               of the textures within the new size.  Returns true if
+//               successful, false otherwise.  If this fails, it will
+//               still result in repacking all the textures in the
+//               original size.
+////////////////////////////////////////////////////////////////////
+bool PaletteImage::
+resize_image(int x_size, int y_size) {
+  // We already know we're going to be generating a new image from
+  // scratch after this.
+  _cleared_regions.clear();
+  unlink();
+  _new_image = true;
+
+  // First, Save the current placement list, while simultaneously
+  // clearing it.
+  Placements saved;
+  saved.swap(_placements);
+
+  // Also save our current size.
+  int saved_x_size = _x_size;
+  int saved_y_size = _y_size;
+
+  // Then, sort the textures to in order from biggest to smallest, as
+  // an aid to optimal packing.
+  sort(saved.begin(), saved.end(), SortPlacementBySize());
+
+  // And while we're at it, we need to officially unplace each of
+  // these.
+  Placements::iterator pi;
+  for (pi = saved.begin(); pi != saved.end(); ++pi) {
+    (*pi)->force_replace();
+  }
+
+  // Finally, apply the new size and try to fit all the textures.
+  _x_size = x_size;
+  _y_size = y_size;
+
+  bool packed = true;
+  for (pi = saved.begin(); pi != saved.end() && packed; ++pi) {
+    if (!place(*pi)) {
+      packed = false;
+    }
+  }
+
+  if (!packed) {
+    // If it didn't work, phooey.  Put 'em all back.
+    _x_size = saved_x_size;
+    _y_size = saved_y_size;
+    
+    Placements remove;
+    remove.swap(_placements);
+    for (pi = remove.begin(); pi != remove.end(); ++pi) {
+      (*pi)->force_replace();
+    }
+
+    bool all_packed = true;
+    for (pi = saved.begin(); pi != saved.end(); ++pi) {
+      if (!place(*pi)) {
+	all_packed = false;
+      }
+    }
+    nassertr(all_packed, false);
+  }
+
+  return packed;
+}
+
 ////////////////////////////////////////////////////////////////////
 //     Function: PaletteImage::write_placements
 //       Access: Public
diff --git a/pandatool/src/egg-palettize/paletteImage.h b/pandatool/src/egg-palettize/paletteImage.h
index c06104330c..2e29607acd 100644
--- a/pandatool/src/egg-palettize/paletteImage.h
+++ b/pandatool/src/egg-palettize/paletteImage.h
@@ -39,6 +39,9 @@ public:
   void unplace(TexturePlacement *placement);
   void check_solitary();
 
+  void optimal_resize();
+  bool resize_image(int x_size, int y_size);
+
   void write_placements(ostream &out, int indent_level = 0) const;
   void reset_image();
   void update_image(bool redo_all);
diff --git a/pandatool/src/egg-palettize/palettePage.cxx b/pandatool/src/egg-palettize/palettePage.cxx
index 045f389e13..7abaed9a7e 100644
--- a/pandatool/src/egg-palettize/palettePage.cxx
+++ b/pandatool/src/egg-palettize/palettePage.cxx
@@ -19,27 +19,6 @@
 
 TypeHandle PalettePage::_type_handle;
 
-// This is an STL object to sort an array of TexturePlacement pointers
-// in order from biggest to smallest.
-class SortPlacementBySize {
-public:
-  bool operator ()(TexturePlacement *a, TexturePlacement *b) const {
-    if (a->get_y_size() < b->get_y_size()) {
-      return false;
-
-    } else if (b->get_y_size() < a->get_y_size()) {
-      return true;
-
-    } else if (a->get_x_size() < b->get_x_size()) {
-      return false;
-
-    } else if (b->get_x_size() < a->get_x_size()) {
-      return true;
-    }
-    return false;
-  }
-};
-
 ////////////////////////////////////////////////////////////////////
 //     Function: PalettePage::Default Constructor
 //       Access: Private
@@ -190,6 +169,21 @@ write_image_info(ostream &out, int indent_level) const {
   }
 }
 
+////////////////////////////////////////////////////////////////////
+//     Function: PalettePage::optimal_resize
+//       Access: Public
+//  Description: Attempts to resize each PalettteImage down to its
+//               smallest possible size.
+////////////////////////////////////////////////////////////////////
+void PalettePage::
+optimal_resize() {
+  Images::iterator ii;
+  for (ii = _images.begin(); ii != _images.end(); ++ii) {
+    PaletteImage *image = (*ii);
+    image->optimal_resize();
+  }
+}
+
 ////////////////////////////////////////////////////////////////////
 //     Function: PalettePage::reset_images
 //       Access: Public
diff --git a/pandatool/src/egg-palettize/palettePage.h b/pandatool/src/egg-palettize/palettePage.h
index beb9799af3..78069c1adf 100644
--- a/pandatool/src/egg-palettize/palettePage.h
+++ b/pandatool/src/egg-palettize/palettePage.h
@@ -41,6 +41,7 @@ public:
   void unplace(TexturePlacement *placement);
 
   void write_image_info(ostream &out, int indent_level = 0) const;
+  void optimal_resize();
   void reset_images();
   void update_images(bool redo_all);
 
diff --git a/pandatool/src/egg-palettize/palettizer.cxx b/pandatool/src/egg-palettize/palettizer.cxx
index 0d9296cb4f..4232725d03 100644
--- a/pandatool/src/egg-palettize/palettizer.cxx
+++ b/pandatool/src/egg-palettize/palettizer.cxx
@@ -345,6 +345,21 @@ process_all() {
   }
 }
 
+////////////////////////////////////////////////////////////////////
+//     Function: Palettizer::optimal_resize
+//       Access: Public
+//  Description: Attempts to resize each PalettteImage down to its
+//               smallest possible size.
+////////////////////////////////////////////////////////////////////
+void Palettizer::
+optimal_resize() {
+  Groups::iterator gi;
+  for (gi = _groups.begin(); gi != _groups.end(); ++gi) {
+    PaletteGroup *group = (*gi).second;
+    group->optimal_resize();
+  }
+}
+
 ////////////////////////////////////////////////////////////////////
 //     Function: Palettizer::reset_images
 //       Access: Public
diff --git a/pandatool/src/egg-palettize/palettizer.h b/pandatool/src/egg-palettize/palettizer.h
index a1ccdfd51c..59526b5e25 100644
--- a/pandatool/src/egg-palettize/palettizer.h
+++ b/pandatool/src/egg-palettize/palettizer.h
@@ -37,6 +37,7 @@ public:
   void read_txa_file(const Filename &txa_filename);
   void process_command_line_eggs();
   void process_all();
+  void optimal_resize();
   void reset_images();
   void generate_images(bool redo_all);
   bool read_stale_eggs(bool redo_all);
diff --git a/pandatool/src/egg-palettize/texturePlacement.cxx b/pandatool/src/egg-palettize/texturePlacement.cxx
index 65aa7ffb5d..11f87a8d07 100644
--- a/pandatool/src/egg-palettize/texturePlacement.cxx
+++ b/pandatool/src/egg-palettize/texturePlacement.cxx
@@ -968,3 +968,28 @@ fillin(DatagramIterator &scan, BamReader *manager) {
   _num_references = scan.get_int32();
   manager->read_pointers(scan, this, _num_references);
 }
+
+
+////////////////////////////////////////////////////////////////////
+//     Function: SortPlacementBySize::Function Operator
+//       Access: Public
+//  Description: Compares two TexturePlacement objects and returns
+//               true if the first one is bigger than the second one,
+//               false otherwise.
+////////////////////////////////////////////////////////////////////
+bool SortPlacementBySize::
+operator ()(TexturePlacement *a, TexturePlacement *b) const {
+  if (a->get_y_size() < b->get_y_size()) {
+    return false;
+    
+  } else if (b->get_y_size() < a->get_y_size()) {
+    return true;
+    
+  } else if (a->get_x_size() < b->get_x_size()) {
+    return false;
+    
+  } else if (b->get_x_size() < a->get_x_size()) {
+    return true;
+  }
+  return false;
+}
diff --git a/pandatool/src/egg-palettize/texturePlacement.h b/pandatool/src/egg-palettize/texturePlacement.h
index 2eff5ac42d..62264dcef8 100644
--- a/pandatool/src/egg-palettize/texturePlacement.h
+++ b/pandatool/src/egg-palettize/texturePlacement.h
@@ -133,5 +133,13 @@ private:
   static TypeHandle _type_handle;
 };
 
+
+// This is an STL object to sort an array of TexturePlacement pointers
+// in order from biggest to smallest.
+class SortPlacementBySize {
+public:
+  bool operator ()(TexturePlacement *a, TexturePlacement *b) const;
+};
+
 #endif