Prestack seismic reflection data contain amplitudes, traveltimes, and moveout information; waveform inversion of such data has the potential to estimate attenuation levels, reflector depths and geometry, and background velocities. However, when inverting reflection data, strong nonlinearities can cause reflectors to be incorrectly imaged and can prevent background velocities from being updated. To successfully recover background velocities, previous authors have resorted to nonlinear, global search inversion techniques.We propose a two-step inversion procedure using local descent methods in which we perform alternate inversions for the reflectors and the background velocities. For our reflector inversion we exploit the efficiency of the back-propagation method when inverting for a large parameter set. For our background velocity inversion we use Newton inverse methods. During the background velocity inversions it is crucial to adaptively depth-stretch the model to preserve the vertical traveltimes. This reduces nonlinearity by largely decoupling the effects of the background velocities and reflectors on the data. Nonlinearity is further reduced by choosing to invert for slownesses and by inverting for a sparse parameter set which is partially defined using geological reflector picks.Applying our approach to shallow seismic data from the North Sea collected over a gas-sand deposit, we demonstrate that the proposed method is able to estimate both the geometry and internal velocity of a significant velocity structure not present in the initial model. Over successive iterations, the use of adaptive depth stretching corrects the pull-down of the base of the gas sand. Vertical background velocity gradients are also resolved. For an insignificant extra cost the acoustic attenuation parameter Q is included in the inversion scheme. The final attenuation tomogram contains realistic values of Q for the expected lithologies and for the effect of partial fluid saturation associated with a shallow bright spot. The attenuation image may also indicate the presence of fracturing.