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In the conventional error diffusion method applied to alternating current plasma display panel (AC PDF), all directions' diffusion coefficients are fixed all the time in diffusion process, which results in the loss of image details and causes false contours. To overcome the shortcoming of the conventional error diffusion method, a dynamic error diffusion method based on edge detection is proposed. In the proposed method, error diffusion coefficients are dynamically adjusted according to the edge detection executed along four diffusion directions. The dynamic error diffusion method makes the error diffusion coefficients coincide with the characteristic of image contour, and decreases the accumulated errors generated in the conventional error diffusion process. A real-time image processor with the dynamic error diffusion was implemented and tested on a 42- inch AC PDP. Simulation and experimental results show that both the static false contours caused by lack of gray levels and the loss of image details caused by fixing diffusion coefficients are decreased effectively, which improves image quality of AC PDP greatly.