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You probably should do everything you want to do to the photo before you bring it into the layout. That includes softening the edges. Basically want you want to do is use the marqee tool to select approximately the part you want to delete, add a feather to the selection (try Selection-Feather which is where the command is in Photoshop), and hit the Delete key. You will need to experiment to see how much feathering you want.
If by softening you mean a feathering out to either white or black, you need to put the white or black layer under your photo and then flatten the photo before you pull it into your layout file.
By the way, ALWAYS work with COPIES and not the original photo file.
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