You betchya!
Applique is simply attaching a form to a fabric base (in quilting). It will look nice to see the picture on top of the quilting - - added interest. <wave>
and, of course you would do it by hand. Just make sure that your attaching stitches don't go all the way through to the back. It may be a quilt police problem ... but, there is no need to do it clear through all the layers <wave.>