Photoshop into illustrator CS3

hi. I have a grayscale photoshop file that I need to import into Illustrator for an overlay effect.
how can I make the white pixels transparent so that I can see the illustrator layer below?
the ps grayscale image must overlay the illustrator layers.
thanks in advance for your help!

Illustrator has in the past recognized blend modes on placed layered files from Photoshop, but I have read here that CS3 does not. I have not confirmed this myself, so take that with a grain of salt.
As you learned, setting the multiply blend in Illustrator works well for a simple flattened image.
for making Peel off White work... I can't test this myself right now, so this is for you to test, too. I am guessing you will get a better result if you convert your image to RGB instead of to CMYK before running the filter.
It has been my experience that Peel Off White and manually filling in the manner Doug describes often give somewhat darker images than you might expect, so keep an eye out for this, and adjust as needed after the operation. I always keep my original layer, and run Peel Off White on a copy layer. I compare the transparent version to the original, adjust as need be, then when I'm happy with my result I hide or discard the original.

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