3.
With the image open on just the background layer,Go to Layer>Duplicate Layer, to make a copy
of the image.
4.
With the Elliptical Marquee tool draw an
oval selection around the
area you DON'T want to blur.
5.
Go to Select>Feather, and choose a
high number (you can go up to
250 pixels but what you choose will depend on the size and
resolution
of your image)
6. Go to Select>Inverse.
7.
Go to Filter>Blur>Gaussian Blur, and
Select a blur value fromt he submenu.
8. You may
blur more with the same radius to create the effect you want by
repeating the above step.