The FAQ reads:
C.35. Can I host images on another server to conserve space?
The straight answer is no. Gallery must have the images on the local server in order to manipulate (i.e. resize, rotate, etc..) them. There is no fast, easy, and widely available way to manipulate (i.e. edit) files on remote servers (there are a few, but none fit all 3 criteria).
It is possible, however, to host your images on multiple servers in order to distribute the bandwidth. For instance, if you have a server that doesn't support PHP, but has lots of bandwidth, you can host the images on that server (as well as the local server) and Gallery will attempt to use the images on the server with lots of bandwidth, so that the local server doesn't suffer so much. More information is available in the mirroring tutorial.
However, what if this was supported, but remote images has resize and rotate disabled? For someone who needs to store his images on another server its a small price to pay. I dont mind doing all the editing I have to do manually so long as I can use a remote server for images!
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