Hi!
Yes, your game can participate.
Our rules allow the use of AI tools for asset creation, including artwork, music and sound effects. We just ask that AI-generated content is used thoughtfully and ethically, and that it does not replicate or closely resemble existing copyrighted content.
So using AI tools to create artwork and then adjusting or editing it yourself in Photoshop is allowed.
Transparency is important to us, though. Please make sure to correctly fill in itch.io's AI disclosure, answer the AI-related question in the jam submission form and mention the use of AI-generated artwork somewhere on your project page or description. This way, other participants and the judges know how the assets were created.
Good luck with the final part of the jam! :-)