The problem is jar1 contains images and is the main application jar.
jar2 contains a utility image loading method which gets called by jar1.
So, jar2 gets asked by jar1  to access images from jar1 and return them
to jar1.

Apologies if I wasn't clear. I have two jars:

application.jar and utilities.jar. The first jar contains my
application, the second is a library to be reused by other
applications.

Application code in application.jar calls a utility method in
utilities.jar each time it wishes to load and image. ( This utility
method also uses a media tracker. ) However, the actual images as you'd
expect reside inside the application.jar in a folder called images.
This all works fine in Eclipse. In addition, when the code that
comprises the two jars is packed into one single jar, everything works
fine. The problem arises when two separate jaars are used. I do not
have any class path problems as application.jar can call all other
methods in utility.jar.

The problems seems to be the ping-pong of calls between the two jars
and the lack of visibility of the images in application.jar to
utilites.jar. I load the images using the following technique:

ClassLoader classLoader = ...
URL imageURL = classLoader.getResource(pathRelativeToClassRoot);
Image image = Toolkit.getDefaultToolkit().createImage(imageURL);

However, the above code found in utilities.jar needs to load images
from application.jar ( or any other jar ). It seems to me that
utilising a class loader associated with utilities.jar is going to be
of no use when attempting to access resources inside other jars.
Consequently, I give the ImageLoader code the class loader associated
with the relevant jar. However, this does not work.

I do not want ot go down the avenue of tightly coupling utilities.jar
to application.jar by adding application.jar to its class path.
utilities.jar shouldn't have any dependencies and should be re-usable.

1. application.jar ( containing images ) --- calls loadImage on ---
utilities.jar

2. utilities.jar --- loads an image from application.jar

3. utilities.jar -- returns the image to --- application.jar for
display.