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Propagation properties of optical pulses in a two-dimensional photonic crystal with a straight waveguide structure imbedded were examined using a high accuracy finite-difference time-domain (FDTD) algorithm based on nonstandard finite differences. A tunable and significantly large group velocity dispersion was found even for photonic crystal structures as small as 10 unit cells long. Detailed calculations indicated that a very small photonic crystal with an imbedded waveguide can be used to control pulse dispersion, i.e., a just 25 μm long photonic crystal with waveguide can compress a 1% up-chirped pulse to the Fourier transform limit. Further, our FDTD calculations showed excellent agreement with the prediction of photonic band calculations on infinite structures. © 2003 American Institute of Physics.