In this paper, a new lossless data compression method that is based on digram coding is introduced. This data compression method uses semi-static dictionaries: All of the used characters and most frequently used two character blocks (digrams) in the source are found and inserted into a dictionary in the first pass, compression is performed in the second pass. This two-pass structure is repeated several times and in every iteration particular number of elements is inserted in the dictionary until the dictionary is filled. This algorithm (ISSDC: Iterative Semi-Static Digram Coding) also includes some mechanisms that can decide about total number of iterations and dictionary size whenever these values are not given by the user. Our experiments show that ISSDC is better than LZW/GIF and BPE in compression ratio. It is worse than DEFLATE in compression of text and binary data, but better than PNG (which uses DEFLATE compression) in lossless compression of simple images.