Users should be able to insert images inline in text.

Mockup:

It could work like this:

• You can only insert inline images if you use the global inserter
• You can only do it if you first set the cursor in text
• When you set the cursor in text, and click the global inserter, a blue square is immediately inserted where the inline element will appear
• The global inserter detects that the cursor is in text, and shows only inline blocks, if you'd like to insert a block level block just make a linebreak into an empty paragraph, or unfocus the paragraph
• Inline images have no placeholders, so as soon as you insert an inline image, it opens the media library

This flow is as close to the existing image insertion flows as I believe we can get. In the current editor, you always put the cursor where you want an image, first, and then you insert an image. If this happens to be while you’re inside text, then you get an inline image, if you’re on an empty line, you get an image that behaves like a block level element.

In this mockup, you'd have the same flow here, except with an Inserter UI instead of the usual Add Media way.

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Original text:

If you're working within the Classic Text block, there's no way to include an image inline. Like the classic editor, we should support images within that block.