Photo Effects: Create A Photo Within A Photo
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Step 10: Duplicate The Background Layer Once Again
Before we go applying our Radial Blur, let's duplicate the Background layer one more time so that we have a separate layer on which to apply the filter, since we never want to touch the original pixel information of our image on the Background layer. Select the Background layer in the Layers palette, then press Ctrl+J (Win) / Command+J (Mac) to duplicate it. Double-click on the new layer's name and rename it "Radial Blur:
Step 11: Apply The Radial Blur Filter To The New Layer
With the new "Radial Blur" layer selected in the Layers palette, go up to the Filter menu at the top of the screen, select Blur, and then select Radial Blur, which brings up the Radial Blur dialog box. First, set the Blur Method to Zoom, then set the Quality to Best. The Amount option at the top determines how much of a blur effect you'll get. I'm going to set mine to 40, but you may want to to use a different value. The Blur Center option in the bottom right of the dialog box determines where the blur will originate from in your image. Try to position the blur center close to where the subject in your photo is by clicking at that approximate location in the Blur Center box. It's not the most accurate thing in the world and it make take you a couple of tries before you get it right, so don't be afraid to undo the filter with Ctrl+Z (Win) / Command+Z (Mac) and try again if at first you don't succeed:
Click OK when you're done to exit out of the dialog box and apply the radial blur to the image:
Step 12: Lower The Opacity Of The Radial Blur Layer
This last step is optional, but I think my radial blur is too intense. I want it to blend in more with the original image on the Background layer, and I can do that simply by going up to the Opacity option at the top of the Layers palette and lowering the opacity to around 60%, which I think works nicely:
For comparison, here's my original image once again:

And here, after lowering the opacity of my Radial Blur layer, is my final "photo within a photo" result:
And there we have it!
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