How to overlay images

I just got done doing this exact thing in a project. The HTML side looked a bit like this:

<a href="[fullsize]" class="gallerypic" title="">
  <img src="[thumbnail pic]" height="90" width="140" alt="[Gallery Photo]" class="pic" />
  <span class="zoom-icon">
      <img src="/images/misc/zoom.gif" width="32" height="32" alt="Zoom">
  </span>
</a>

Then using CSS:

a.gallerypic{
  width:140px;
  text-decoration:none;
  position:relative;
  display:block;
  border:1px solid #666;
  padding:3px;
  margin-right:5px;
  float:left;
}

a.gallerypic span.zoom-icon{
  visibility:hidden;
  position:absolute;
  left:40%;
  top:35%;
  filter:alpha(opacity=50);
  -moz-opacity:0.5;
  -khtml-opacity: 0.5;
  opacity: 0.5;
}

a.gallerypic:hover span.zoom-icon{
  visibility:visible;
}

I left a lot of the sample in there on the CSS so you can see how I decided to do the style. Note I lowered the opacity so you could see through the magnifying glass.

Hope this helps.

EDIT: To clarify for your example - you could ignore the visibility:hidden; and kill the :hover execution if you wanted, this was just the way I did it.

One technique, suggested by this article, would be to do this:

<img style="background:url(thumbnail1.jpg)" src="magnifying_glass.png" />