Sorry, got called away before I had a chance to finish posting the last picture. This method is for general blurring, it's called gaussian blur.
The key here once again is to user layers, and also using the Lasso Selection tool to highlight the areas you want to be blurred. I exagerrated the blurs in the 'London3.jpg' to show you the effect. Sorry, didn't have time to do it up proper, have to leave soon.
The Gaussian Blur tool can be found under ADJUST>BLUR>GAUSSIAN BLUR. You can adjust the radius of the blur using the slider tool.
The other blur options are in the same area, they are BLUR, BLUR MORE, MOTION BLUR and RADIAL BLUR. Play around with these options to get the effect you want.
Now, if you want the areas around the object to appear lighter or whiter, just use the lighten Tool at a low transparency setting. It may take some experimentation here.
Okay, really got to leave now! Here's the last jpg with blurring slightly exaggerating use the lasso selection tool and the gaussian blur.
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