Do you want the image to be white in the area around the circle or seethrough? What purpose is it to be used for?
If you just want the space to be white, you could circle the image and then use the eraser to erase the stuff outside the circle. Obviously this isn't ideal though. A better solution you could use is download the free version of Serif Photoplus from
Free Serif Software. This has a circle selection tool that allows you to select the part of the picture you want and then paste it into a seethrough image or a new white image you have created in the program.