Upload your image to: http://www.favicon.cc/
and save the favicon.ico file local on your computer.
Edit Favicon gadget in Layout section.


Create and host your favicon at: http://www.iconj.com
paste yor favicon code (here is a example):

<!-- iconj.com favicon code -->
<link rel="shortcut icon" href="http://www.iconj.com/icon.php?pid=4oxxxxme1g" type="image/x-icon" />
<!-- end of iconj.com favicon code -->

in your blogger HTML template just before </head>