Now you don’t have to use the workarounds like

• uploading images top an image host and inserting the HTML code into your mails
• using a userscript to make Gmail let you insert images

Gmail has introduced this feature now in their Labs section.

Here’s how you can use it

1. Login to your gmail account (of course you need to do that)
2. Click on the Labs icon , as shown here
   

   The labs icon is between email id and Settings link

3. Scroll down in the features list to the one that says Insert Images
   

   Scroll down to Insert Images

4. Click on the enable radio button and Save your settings
5. Now whenyou compose a mail you havethe insert image icon on the toolbar
   

   Compose Mail

Now you can add images to your mails without much effort

Do give your feedback to google about this feature so they make it a permanent feature