This paper presents a combined dual stage-based mechanical and image-based stabilization scheme for a three-axis image-tracking sight system. To improve the stabilization and tracking accuracy, a secondary stage actuated by a pair of electro-magnets is mounted on a conventional elevation gimbal. For the remaining roll axis stabilization, an electronic digital- image stabilization technique is introduced to estimate and correct roll motions. Experimental results are given to demonstrate the effectiveness of the proposed stabilization system and the image-stabilization scheme.