Your cameraman.jpg image is already a gray image, you are trying to convert it to gray using rgb2gray, that's why error. Try this:
x=.01;
t=cputime;
I1=imread('lena.jpg');%read image
% I1=imread('mand.jpg');%read image
H=rgb2gray(I1); %convert it into gray scale image
J=imresize(H,[512 512]);%resize image into 512x512 image
J= double(J);
[M,N]=size(J);
figure,imshow(uint8 (J));title('Original image')
[Lo_D,Hi_D,Lo_R,Hi_R] = wfilters('haar');
[ca,ch,cv,cd] = dwt2(J,Lo_D,Hi_D);
[ca1,ch1,cv1,cd1] = dwt2(ch,Lo_D,Hi_D);
[U,S,V] = svd(ch1);
[m,n]=size(S);
% Copy the original Singular value
Sw=S;
I2=imread('cameraman.jpg');%read Watermark image
if size(I2,3)==3
H1=rgb2gray(I2); %convert it into gray scale image
else
H1 = I2 ;
end
J1=imresize(H1,[128 128]);%resize image
[a,b]=size(ch1);
W1= double(J1);
W1=imresize(W1,[a b]);% resize the 1 watermark image
[p,q]=size(W1);
% Watermark insertion
S=S+(x*W1);
[U_w,S_w,V_w]=svd(S);
[cs1]=[U*S_w*V'];
wing = idwt2(ca1,cs1,cv1,cd1,Lo_R,Hi_R);
wing1 = idwt2(ca,wing,cv,cd,Lo_R,Hi_R);
t1=cputime;
figure,imshow(uint8(wing1)),title('Watermarked Image')
