Image restoration can be modeled as a discrete, ill-posed, 2-D inverse problem where, if the blurring function (PSF) h is spatially invariant, then the blurring operator will have a displacement stracture.We consider solving this image restoration problem by a preconditioned conjugate gradient least squares algorithm. Because the problem is ill-posed, it is necessary to use regularization in order to compute a reasonable approrimation to the trae image. We describe preconditioning techniques for two different regularization procedures; Tikhonov regularization, and iterative regularization with the conjugate gradient algorithm. In particular, we show how one can incorporate preconditioning, using a block circulant operator, into the conjugate gradient algorithm for these regularization schemes. We thus obtain new fast and stable 2-D FFT based iterative methods in which preconditioning takes place in the Fourier domain, while the iteration takes place in the spatial domain. If the least squares restoration problem is M-by-N, then the overall numerical complexity of our algorithm is O(M log N). Moreover, the preconditioning does not affect the resolution of the restored image. Numerical tests comparing several underlying circulant preconditioners, as well as tests with and without our preconditioned regularization procedure, are reported for a model problem. Also discussed are implementations of the algorithms on the new Cray massively parallel processor (MPP) system. In other more general (i. e. non spatially invariant PSF) situations, it is often still the case that the blurring matrix is generated by a "smooth" PSF h on a regular grid. For general non-periodic situations, the FFT cannot be effectively used. Here, our purpose is to explore the possible use of new wavelet transform based preconditioned conjugate gradient iterative methods of solution for these problems. The decompositions and subsequent iterations may be done in O(M log N) or even 0(M) operations for M-by-N operators H, by preconditioning with wavelets.