Electro-optical (EO) imaging sensors are employed for object detection, recognition, identification, and tracking. The observation range of EO systems is defined as the maximum distance at which a target of interest can be seen and perceived. The performance of these systems deteriorates under degraded weather conditions, which severely affects the image quality and thus the observation range of EO surveillance systems. An improved image quality results in an enhanced observation range. Image quality can be improved by applying suitable digital image enhancement techniques by considering target/background signature knowledge. Under bad weather conditions, these digital techniques become ineffective due to the presence of scattered background signals. To reduce the effect of scattering, optical methods are also used to mitigate degradation caused by the atmosphere. It is observed that the optical method alone cannot produce the desired result. Observation range enhancement in surveillance system is achieved using the proposed hybrid method, which utilizes the optimal combination of optical and digital techniques in real-time. The proposed method not only improves human visual perception but also reveals more image content for better image analysis. The performance of the proposed range enhancement technique is compared with the predicted observation range model. The processed images using the hybrid method show more than 30% observation range enhancement under bad weather conditions. In addition to the subjective evaluation, qualitative and quantitative evaluations of image quality achieved through the proposed method are also presented. It is observed that the proposed hybrid method significantly improves the observation range and image quality of EO sensors under degraded weather in real time.