Click on the thumbnail of the white box in the layers pallet and then go to Image> Apply Image. In there, just leave the default settings and click OK.
Now go to Image> Adjustments> Brightness/Contrast. If you are using Adobe Photoshop CS3, checkmark "use legacy". If you are using older versions of Photoshop such as Photoshop CS2, there's nothing you need to checkmark. Now increase the contrast to 75 and click OK.
Here's the final result. If you don't like the area it blurred, click on the layer mask and press Ctrl+I to invert.