Diffraction characteristics of N-level (5 </= N </= 8) binary gratings fabricated by repetition of three sets of photolithography and dry-etching processes have been investigated. After presentation of the general algorithm to determine a mask pattern and etching depth combination used in each fabrication process, all the methods for creating staircase structures with N = 5, 6, 7, 8 are derived. Then the diffraction efficiency achievable for the different level numbers, with the existence of mask alignment errors and for a fixed grating period, is compared, and it is found that an eight-level structure does not always give the best value.