As always in PS, there's often multiple ways to do things. For this, I used curves to up the contrast a little. Then duplicated the layer, and added a lens blur filter to blur the whole photo. Then add a black mask to this layer, and paint in with a soft white brush, which reveals the blurred layer background.
Just a quick 5 minute job - doing it properly would requie more attention to the dog edges, as some of the fur is fairly soft...
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