EDIT: I have updated the link of asido to http://sourceforge.net/projects/asido/files/ – thanks to Johan.

What you Need:

1. PHP 5
2. GD Library
3. Jquery
4. ImgAreaSelect
5. Asido

How it works:

1. After uploading the local image, it will be processed and converted to jpg regardless of image type.
2. It accepts Jpg,Gif and Png and then add a white background if the image will not fit on the exact dimension. You can change the background color by editing the php file. Please visit Asido for more details: http://sourceforge.net/projects/asido/files/
3. The file upload is done via iframe to prevent page refresh thus mimicking Ajax (there is no way to do Ajax on file inputs) .
4. Jquery will get the file content of the iframe and then load it to the main page. You will see the big image , cropped and converted to jpg or an error if the file upload is unsuccessful.
5. Click create thumbnail to create a thumbnail, in the demo you can see the image source of the thumbnail so that you can use it in your application.
6. Have FUn!