There are a few ways to do this, e.g., concatenation:
<?php
if (isset($image)) {
echo '<img src="images/gallery-photos/' . $image . '" border="0">';
} else {
echo '<img src="images/contact-01.png" border="0">';
}
?>
Notice my closing brace placement too. If you cannot trust the value of $image, or if it otherwise may contain special characters, then you should concatenate with htmlspecialchars($image) instead.