If we think about the set $E \setminus h(E)$, this is the set $\\{ x : x \in E \mbox{ and } x \
ot\in h(E) \\}$. So if we apply $h$ to this set, we see that for such an $x$, $h(x) \in h(E)$ (obviously), but we cannot have $h(x) \in h^{2}(x)$ (since $x$ was not in $h(E)$). This uses the fact that $h$ is one-to-one; by definition, an element $y$ is in $h^{2}(E)$ if there exists some $x$ in $h(E)$ with $h(x) = y$; since $h$ is one-to-one, you are guaranteed that there is not an $x^{\prime} \
eq x$ (and so possibly not in $h(E)$) that also has $h(x^{\prime}) = y \in h^{2}(E)$.
This shows that $h(E \setminus h(E)) \subset h(E) \setminus h^{2}(E)$. Now you just need to show the reverse inclusion to finish the proof.