Now you can do this very easily with the "Rich Text Editor Feature of "Blogger".
With rich text editor you can add your images, into the appropriate place in your blog. You can upload
multiple images simultaneously, more than five ( in Old Post Editor image upload is limited to 5). After uploading images you can choose what you want to upload & the remaining pictures will be automatically discarded by Blogger. You can adjust the image size to greater size also without loss of image quality. Multiple images are uploaded in a thumb nail view, select the image where you you want to post it & click add, then close it by cancelling. Again if you want to add another image at another place , just do in same way.
See in the screen shots how you can enable rich text editor for blogger:
Even if you close the image upload , the image are shown as thubnails,when you again click the image upload option in rich text editor.
The only drawback I found in rich text editor, is that it is a little bit slower than old editor.
Again I am summarizing the procedure for enabling rich text editor for your blogs:
First go to your Dashboard---> click Settings---> click Basic---> Go to the bottom of page---> select rich text editor---> SAVE the Settings.
DO NOT FORGET TO SAVE THE SETTINGS, otherwise it wil not be enabled.