This paper presents digital hearing aids signal processing system in WT(wavelet transform) domain. For implementation of hearing aids in WT domain, the gain in frequency domain is approximated in WT domain. We also present the gain selection algorithm to deal with the change of input signal power. Most transform methods produce blocking effect, and this effect degrades the convergence rate of feedback canceller. As a solution, we proposed wavelet transform bascd feedback canceller. To evaluate the performance, we compared it with LOT (lapped orthogonal transform) method in the frequency domain. This system has not shown the blocking effect, and improves convergence rate as compared with the LOT based feedback canceller.