Preventing pixelated edges when merging two images in Photoshop

Question

I used the following setup

to take two pictures of the supermoon yesterday. One with the moon properly exposed:

and one with the wooden puppet properly exposed (but the moon blown out):

I tried combining these two pictures in Photoshop CS6 using roughly the following steps:

• Add the two images as layers
• In the image with the puppet, make the blown out moon transparent
• Use Free transform with shift pressed to fit the moon in the 'cutout'

This resulted in the following image:

But I am not totally happy with that image because of

• the white halo around the moon
• if you zoom in, you see the edge of the moon is very pixalated

Is there a better way to merge these two images? Also, if I wanted to do some further postprocessing on the moon image to get some more contrast etc, would it be best to do that before or after merging the images? For reference, the RAW image files of the moon and puppet.

Edit:

The new result, after following the steps as explained by Vincent:

Answer 1

You'll want to use a masking technique to do this: making a part of your 'puppet' image hidden and have the 'moon' image show through.

1. Open your 'puppet' image

2. Open the Layers palette: Window > Layers or F7

3. Double-click the 'puppet' layer in the Layers palette and click OK in the pop-up that appears to have your image be a regular layer (as opposed to Background)

4. Open your 'moon' image

5. Use the Move tool (V) to drag the 'moon' Background layer into the 'pupper' file widow.

6. In the 'puppet' image's Layers palette, drag the 'moon' layer below the 'puppet' layer

7. Select the puppet layer in the Layers palette

8. At the bottom om the palette, click on the Add layer mask icon. A fully white miniature appears next to the 'puppet' layer miniature.

   

9. Grab a black (#000000) brush (B) with a hardness around 85% (trial and error may be necessary with this value). You can set brush hardness in the option bar.

10. Draw on the layer mask where the light spot is. Everywhere you draw in black, the 'puppet' layer will turn transparent.

11. Select your 'moon' layer and Free Transform (Ctrl/Option+T) it to fit the 'hole'.

Ideally, you can set your black brush at the exact size of the light spot and you'll only have to click once to blot out the entire light spot, as it's presumably circular.

A bit of clarification: the layer mask is a greyscale image, linked to each layer, that governs which parts of the layer are visible. White corresponds to 100% opaque, black to 0% opaque (thus, fully transparent), and percentages of grey are something in between. You can edit the layer mask any time you want, without losing / deleting any pixels from the actual layers.

In your case, you want the 'puppet' layer mask to be fully black in the majority of the light spot, but you want a smooth transition from transparent to opaque at the edges. That's why you use a brush with less than full hardness.