In this paper, we proposed a new wavelet-based image fusion algorithm, which has advantages in both frequency and spatial domains for signal analysis. The developed algorithm compares the ratio of SAR image signal to optical image signal and assigns the SAR image signal to the fused image if the ratio is larger than a predefined threshold value. If the ratio is smaller than the threshold value, the fused image signal is determined by a weighted sum of optical and SAR image signal. The fusion rules consider the ratio of SAR image signal to optical image signal, image gradient and local variance of each image signal. We evaluated the proposed algorithm using Ikonos and TerraSAR-X satellite images. The proposed method showed better performance than the conventional methods which take only relatively strong SAR image signals in the fused image, in terms of entropy, image clarity, spatial frequency and speckle index.