How do I reduce the size of a photo after I copy (merge) it another?

Sorry for such a basic question, but when I was using Elements 5.0 I could open two photos, drag one photo into the other, then resize the photo by selecting it and using the handles.  I can't find a way to do this in Photoshop CS3.  Is this possible?   Am I missing a setting somewhere?
I can drag one photo into another and move it around, but just can't resize it.
Thanks in Advance!
Scott

with the Move Tool active select Show Transform Controls from the Options Bar or just press Ctrl+T with any tool active

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