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1) Select the towers layer and go to Edit>Duplicate. Drag this layer below the towers layer, rename it BackgroundBlur, and go to Effect>Blur & Sharpen>Gaussian Blur. Make the towers layer invisible and adjust the blurriness to about 5. Make all the layers visible.

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2) Change the scale of the BackgroundBlur layer to 101%. You should see the blurred image seeping out behind the main image. In some cases, a greater scale setting will be required. You can also increase the level of Gaussian Blur. The blurred edge should be just visible, without being obviously noticeable.


3) Duplicate the towers layer again, place this copy above it in the timeline and rename it ForegroundBlur. Use the Pen tool to click a mask around the inside of the image. This can be quite a rough mask, leaving just enough image to be blurred. Dont waste time by being too accurate.


4) Apply a slight Gaussian Blur to the ForegroundBlur layer. To complete the effect, you might need to slightly reduce the opacity of this layer. If the background is bright, you can increase the brightness of the BackgroundBlur layer to create the impression of light wrapping around the object.