Your topic is a little confusing.
Is it best way to proceed audio extraction and then gather waves??
Yes, sure, You need a 800Mb free diskspace and than you burn your selection in DAO mode with a decent CDburnprogram>let's say Nero.
There's no need to make a diskimage from your gathered *.wav's, because files are relative very big. When buffer underrun occures it's surely not this item.
Is there software to edit contents of iso file (merge other images).
Yes, you can use winimage or isobuster.
But in normal case audiofiles are not packed to *.iso files.
I just want to avoid extraction and copy CD's as is.
You can copy "on the fly", but check out first you CDrom hanles DAE properly. As a rule max extractionspeed need to be twice the burnrate.
When your cdrom don't work properly, you have to use your burner to grab separate tracks or to make a diskimage on HD.