I have 2 photos that overlap (partly) in photoshop (using PS7), I want the overlapped area only to be semi transparent on both photos, but not on the non-over lapping part. If you get what I mean, tried fiddling with the bending options but it changed the opacity of the whole photo rather then just the overlapping area.
If I understand you correctly I think Grinch has the right idea. Copy the two layers. On two of the layers delete the overlapping area you want to vary the opacity of. On the other two layers delete the opposite area that you want to leave solid. This way you can vary the opacity in the overlapping area without affecting the other.