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Re:how to compress iso
based upon the size of your hard drive it is very unlikely that you will ever be able to compress that much data onto a DVD sized image. The methods that you stated will work are well as possible, but most likely will not shrink the data as much as you wish.
The only real way to backup the entire image and do a simple recovery would be to use a program like clonezilla, in which it is stored as an image on another machine and can be recovered through the network.