I want to know is their any sub-library of Andengine that can morph two different images? or in Android? I have been looking for it but i haven't found anything. Help me out...
There is nothing native to andengine that will do that.
To morph images, you need a bitmap manipulation library that does that: javamorph For example this one.
Then in andengine, you assign a texture to a Sprite, and as the bitmap updates, you will need to update the texture region.
Or, render the morph frames and make an animatedSpritetexture.