Blending Your Layers
To actually blend the two layers, you need to add an adjustment layer. To add this layer between your two images, follow the below steps:
1. Select your Background layer.
2. Next, click on the New Adjustment Layer icon. This icon looks like a Ying/Yang symbol.
3. Select some type of Levels adjustment layer. It actually doesn’t matter what type of adjustment layer you choose. It just matters that you have one. A Levels layer is always a good one to choose if you want a suggestion.
4. When the Adjustment Layer dialog box appears, just press OK.
When you have your Adjustment Layer, you know need to group Layer 1 and the Adjustment Layer together. Open up your Layer menu, and select Group with Previous. Now, your layers are groped.
To finish the effect, click on the Adjustment Layer, and open up your Gradient tool. Select the Black-to-White gradient from the Gradient Picker.
Next, click within your photograph and drag around the areas that you want to merge. A gradient mask will now appear in your Layers panel, and the Background image will show through.