Although many watermarking algorithms have been developed in recent years, most of them concentrated on using binary data such as logos or texts. We propose an efficient algorithm of gray-level watermarks using the sub-band filtering approach. With signal processing in the frequency domain, the feature of progressive transformation is utilized to disperse the watermark into the entire image and to enhance the robustness. Simulation results show that the quality of hiding is superb with a 45 dB PSNR on the average. Moreover, our algorithm is capable to provide a reliable watermark protection even the watermarked image suffered from damages or JPEG compressions.