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The aim of this paper is to improve the performance of spatial domain watermarking. To this end, a new perceptual mask and a new detection scheme are proposed. The proposed spatial perceptual mask is based on the cover image prediction error sequence and matches very well with the properties of the human visual system. It exhibits superior performance compared to existing spatial masking schemes. Moreover, it allows for a significantly increased strength of the watermark while, at the same time, the watermark visibility is decreased. The new blind detection scheme comprises an efficient prewhitening process and a correlation-based detector. The prewhitening process is based on the least-squares prediction error filter and substantially improves the detector's performance. The correlation-based detector that was selected is shown to be the most suitable for the problem at hand. The improved performance of the proposed detection scheme has been justified theoretically for the case of linear filtering plus noise attack and through extensive simulations. The theoretical analysis is independent of the proposed mask and the derived expressions can be used for any watermarking technique based on spatial masking. It is shown though that in most cases the detector performs better if the proposed mask is employed.