It is possible. First, copy file-by-file everything from the 5.25-inch disk to the 3.5-inch disk. Then, make sure that the name of 3.5-inch disk matches the original 5.25-inch disk.
The program expects to find itself only on disks with that particular name, and it assumes that its files are in exact places. If you don't change the name or move the files, you'll be fine.
You can use the Apple System Utilities diskette, which should come with every Apple 3.5 and 5.25 Drive accessory kit to copy the files. There are a variety of third-party disk utilities available that can also do this. Check the Redgate Buyer's Guide library on AppleLink for possible solutions.