Why does fractal image compression work? What is the implicit image model underlying fractal block coding? How can we characterize the types of images for which fractal block coders will work well? These are the central issues we address. We introduce a new wavelet-based framework for analyzing block-based fractal compression schemes. Within this framework we are able to draw upon insights from the well-established transform coder paradigm in order to address the issue of why fractal block coders work. We show that fractal block coders of the form introduced by Jacquin (1992) are Haar wavelet subtree quantization schemes. We examine a generalization of the schemes to smooth wavelets with additional vanishing moments. The performance of our generalized coder is comparable to the best results in the literature for a Jacquin-style coding scheme. Our wavelet framework gives new insight into the convergence properties of fractal block coders, and it leads us to develop an unconditionally convergent scheme with a fast decoding algorithm. Our experiments with this new algorithm indicate that fractal coders derive much of their effectiveness from their ability to efficiently represent wavelet zero trees. Finally, our framework reveals some of the fundamental limitations of current fractal compression schemes.