There are several more or less automatic approaches realized in commercial programs or plugins like Photomatix, FDRTools and Fred Miranda's DRI, the free photoshop actions from Erik Krause, or exposure-blend, a script suite for the Gimp.
However, contrast blending can be done completely 'by hand' as described on Michael Reichmann's site - http://www.luminous-landscape.com/tutorials/digital-blending.shtml or like described in A simple approach to HDR-blending
Here is a user comment on Michael's technique:
"I use the second technique, the Layer Mask approach, and have found that it works quickly and easily, while still leaving much room for tweaking as necessary. The only change I've made in my approach is at the end where I work in Levels instead of curves. I find that sliding the mid-tones to the right helps make the resulting image look more realistic. In some cases, you just have to play around with all three sliders until you get a good blend. I also will reduce the opacity of the top layer down to about 85% as well."
The other way to use bracketed exposures is to assemble them into a single HDR image. This can be done with free HDRShop, new Photoshop CS2, cinepaint (tutorial for using cinepaint here) or PFScalibration and the FDRExposer. The problem here is that the HDR image must be compressed to reveal the complete contrast range on a computer monitor.
This was a major problem for HDRShop since only gamma adjustment or (later) the Reinhard tone mapping plugin existed. It is still a problem for Photoshop CS2, but here the HDR images can be converted to a 16 or 8 bit per channel image with more possibilities. Brian Greenstone wrote a nice tutorial about that: 
There are several tools that can handle HDR images: enblend, Hugin and Nona can work with HDR images of different flavours. PTViewer 3.1 can display HDR images with adaptive dynamic range directly. For Linux there are several open source command line tools available that implement different tone mapping algorithms: 
Mark Fink www.northernlight.net