When you click a picture, the Drawing Tools tab, rather than the Picture Tools tab, appears above the Format tab.
Note: If you do not see either the Picture Tools or Drawing Tools tabs, make sure that you selected a picture, shape, or other object.
The picture is not treated as a picture because it is most likely an image with a drawing type of format (such as a vector graphic) or an embedded object.
Common file name extensions for vector graphics are .wmf, .emf, and .eps. Also, most clip art is in vector graphic format.
You may also experience this problem if you haven't correctly selected your picture, or if your document was created in Office 2003 and you're using Office 2007 in Compatibility Mode.
Try one or more of the following:
Replace your image with a picture that has one of these file name extensions: .png, .jpeg or .jpg, .tiff, .bmp, or .gif.
Make sure that you have selected your picture by clicking it.
Double-click the picture to select it and open the Format tab.
If you see [Compatibility Mode] next to the file name at the top of the Office 2007 window, save your document as an Office 2007 document instead of an Office 2003 document, and then try again.