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A new sparsity-based algorithm for the classification of hyperspectral imagery is proposed in this paper. The proposed algorithm relies on the observation that a hyperspectral pixel can be sparsely represented by a linear combination of a few training samples from a structured dictionary. The sparse representation of an unknown pixel is expressed as a sparse vector whose nonzero entries correspond to the weights of the selected training samples. The sparse vector is recovered by solving a sparsity-constrained optimization problem, and it can directly determine the class label of the test sample. Two different approaches are proposed to incorporate the contextual information into the sparse recovery optimization problem in order to improve the classification performance. In the first approach, an explicit smoothing constraint is imposed on the problem formulation by forcing the vector Laplacian of the reconstructed image to become zero. In this approach, the reconstructed pixel of interest has similar spectral characteristics to its four nearest neighbors. The second approach is via a joint sparsity model where hyperspectral pixels in a small neighborhood around the test pixel are simultaneously represented by linear combinations of a few common training samples, which are weighted with a different set of coefficients for each pixel. The proposed sparsity-based algorithm is applied to several real hyperspectral images for classification. Experimental results show that our algorithm outperforms the classical supervised classifier support vector machines in most cases.