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I have no links with this site, I found it when I was searching last year for programs to make my own icon
I just tried the PixelToolbox [axiomx.com] yesterday and it seemed to work ok. It's free and might be worth a look.
You can make this an even surer thing by placing the following code in the <head> of you html document:
<link rel="shortcut icon" href="[path to the favicon goes here]">
By using this code, you can assign different favicons to different sections of your site, and even pull a favicon from a different domain.
This means you can also save a 32x32 image in the same .ico file. Then if someone drags your bookmark to their desktop, for instance, they will automatically see a 32x32 image that looks beautiful, not pixelated the way a doubled 16x16 icon looks.
Some people think that you can just change the file extension of a 16x16 pixel .gif to .ico, and this is NOT true. You need an application that can save to the .ico format.
There are some other issues you may want to consider - color depth for instance, especially on older computers. Some people feel it's a good idea to restrict the favicon's palette to the Windows palette. This step means your icon will work well for a wider possible audience. It also limits the aesthetic possibilities - your trade off to decide.