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Reference: https://help.ubuntu.com/community/LiveCDCustomization

Start up preparation (normal environment -- Can be skipped to "Prepare and chroot", if files are prepared.)
Install required tools

sudo aptitude install squashfs-tools genisoimage
sudo modprobe squashfs

Prepare working base

mkdir ~/live
mv ubuntu-9.04-desktop-amd64.iso ~/live
cd ~/live

Extract original CD content

mkdir mnt