Photoshop has several different Blur filters, but since we're trying to replicate a photographic effect, the one we're going to use is the Lens Blur filter, which unsurprisingly you'll find in the filter menu.
The Lens Blur filter is quite complex, and can simulate different lens types, but for our purposes most of the settings can be left in their default states. The setting we're interested in is the Iris Radius control, since this is the equivalent of the aperture setting on the lens. As those of you who've read my photography tutorials will know, aperture affects depth of field, and a large aperture produces a very narrow depth of field, which is precisely what we want. Macro and miniature photographs typically have very restricted depth of field, so we'll set the Radius to a high figure, 80.
The bottom portion of your picture should now look something like this:
As you can see, the Lens Blur filter has only been applied to the area that was not covered by the mask we created, with the effect fading to follow the gradient filter.