It's a delicate process, it involves building two versions of the textures that have at least one dimension of 1024 or above.
And using v469b/c Unreal Editor.
You create palletized versions in up to 256 size, then a PNG of the original high res.
Import the palettized version first, then use "Import CompMips" on top of said texture and grab the PNG.
If done right the texture will have two mip sets at different resolutions and the package size should go down considerably, as well as the GPU memory usage.
One little screenshot explains a lot more than words.
With this you'll be building packages that are identical in style to the UT CD2 textures.
You may have to rescale textures in levels that already use them, or apply DrawScale in Texture properties.