Targets to be electro-optically read by image capture are illuminated with illumination light emitted from an illumination light source and directed along an illumination path through a window to the targets, and return light from the targets is captured through the window and projected along an imaging path to an array of light sensors of an imaging system. An optical element is located in both the illumination path and the imaging path, and has a light-reflecting, non-diffusing portion for directing the captured return light incident on the light-reflecting portion along a folded imaging path to the array, and a light-diffusing portion for diffusing the illumination light incident on the light-diffusing portion along a folded illumination path to scatter and blur an image of the illumination light source, to increase an apparent size of the illumination light source, and to reduce a perceived brightness of the illumination light source.