The guy wielding the sword doesn't look quite right.
It's a real photo. It looks funny because photoshop in those days was done by drawing onto the neg and stuff.
The photo is of Leonard Siffleet
After Pattiwal rejoined Siffleet and Reharing, they attempted to make their way to the Dutch border. They were ambushed by a hundred native villagers near Aitape and, after a brief melée during which Siffleet shot and wounded one of their attackers, the group was captured and handed over to the Japanese. Interrogated and tortured, the team was confined for approximately two weeks before being taken down to Aitape Beach on the afternoon of 24 October 1943.
Bound and blindfolded, surrounded by Japanese and native onlookers, they were forced to the ground and executed by beheading, on the orders of Vice-Admiral Michiaki Kamada of the Imperial Japanese Navy. The officer who executed Siffleet detailed a private to photograph him in the act. Siffleet's executioner, Yasuno Chikao, has been variously reported as having died before the end of the war, and as having been captured and sentenced to be hanged, with his sentence subsequently commuted to 10 years' imprisonment.
The photograph of Siffleet's execution was discovered on the body of a dead Japanese major near Hollandia by American troops in April 1944. It is believed to be the only surviving depiction of a western prisoner of war being executed by a Japanese soldier
http://en.wikipedia.org/wiki/Leonard_Siffleet