1.Login to your blogger dashboard--> layout- -> Edit HTML

2.Scroll down to where you see </head> tag .

3.Copy below code and paste it just before the </head> tag .

<script src='https://ajax.googleapis.com/ajax/libs/jquery/1.6.4/jquery.min.js' type='text/javascript'/>
<script type='text/javascript'>
//<![CDATA[

/*
* jQuery Color Animations
* Copyright 2007 John Resig
* Released under the MIT and GPL licenses.
*/

(function(jQuery){

// We override the animation for all of these color styles
jQuery.each(['backgroundColor', 'borderBottomColor', 'borderLeftColor', 'borderRightColor', 'borderTopColor', 'color', 'outlineColor'], function(i,attr){
jQuery.fx.step[attr] = function(fx){
 if ( fx.state == 0 ) {
  fx.start = getColor( fx.elem, attr );
  fx.end = getRGB( fx.end );
 }

 fx.elem.style[attr] = "rgb(" + [
  Math.max(Math.min( parseInt((fx.pos * (fx.end[0] - fx.start[0])) + fx.start[0]), 255), 0),
  Math.max(Math.min( parseInt((fx.pos * (fx.end[1] - fx.start[1])) + fx.start[1]), 255), 0),
  Math.max(Math.min( parseInt((fx.pos * (fx.end[2] - fx.start[2])) + fx.start[2]), 255), 0)
 ].join(",") + ")";
}
});

// Color Conversion functions from highlightFade
// By Blair Mitchelmore
// http://jquery.offput.ca/highlightFade/

// Parse strings looking for color tuples [255,255,255]
function getRGB(color) {
var result;

// Check if we're already dealing with an array of colors
if ( color && color.constructor == Array && color.length == 3 )
 return color;

// Look for rgb(num,num,num)
if (result = /rgb\(\s*([0-9]{1,3})\s*,\s*([0-9]{1,3})\s*,\s*([0-9]{1,3})\s*\)/.exec(color))
 return [parseInt(result[1]), parseInt(result[2]), parseInt(result[3])];

// Look for rgb(num%,num%,num%)
if (result = /rgb\(\s*([0-9]+(?:\.[0-9]+)?)\%\s*,\s*([0-9]+(?:\.[0-9]+)?)\%\s*,\s*([0-9]+(?:\.[0-9]+)?)\%\s*\)/.exec(color))
 return [parseFloat(result[1])*2.55, parseFloat(result[2])*2.55, parseFloat(result[3])*2.55];

// Look for #a0b1c2
if (result = /#([a-fA-F0-9]{2})([a-fA-F0-9]{2})([a-fA-F0-9]{2})/.exec(color))
 return [parseInt(result[1],16), parseInt(result[2],16), parseInt(result[3],16)];

// Look for #fff
if (result = /#([a-fA-F0-9])([a-fA-F0-9])([a-fA-F0-9])/.exec(color))
 return [parseInt(result[1]+result[1],16), parseInt(result[2]+result[2],16), parseInt(result[3]+result[3],16)];

// Otherwise, we're most likely dealing with a named color
return colors[jQuery.trim(color).toLowerCase()];
}

function getColor(elem, attr) {
var color;

do {
 color = jQuery.curCSS(elem, attr);

 // Keep going until we find an element that has color, or we hit the body
 if ( color != '' && color != 'transparent' || jQuery.nodeName(elem, "body") )
  break;

 attr = "backgroundColor";
} while ( elem = elem.parentNode );

return getRGB(color);
};

// Some named colors to work with
// From Interface by Stefan Petre
// http://interface.eyecon.ro/

var colors = {
aqua:[0,255,255],
azure:[240,255,255],
beige:[245,245,220],
black:[0,0,0],
blue:[0,0,255],
brown:[165,42,42],
cyan:[0,255,255],
darkblue:[0,0,139],
darkcyan:[0,139,139],
darkgrey:[169,169,169],
darkgreen:[0,100,0],
darkkhaki:[189,183,107],
darkmagenta:[139,0,139],
darkolivegreen:[85,107,47],
darkorange:[255,140,0],
darkorchid:[153,50,204],
darkred:[139,0,0],
darksalmon:[233,150,122],
darkviolet:[148,0,211],
fuchsia:[255,0,255],
gold:[255,215,0],
green:[0,128,0],
indigo:[75,0,130],
khaki:[240,230,140],
lightblue:[173,216,230],
lightcyan:[224,255,255],
lightgreen:[144,238,144],
lightgrey:[211,211,211],
lightpink:[255,182,193],
lightyellow:[255,255,224],
lime:[0,255,0],
magenta:[255,0,255],
maroon:[128,0,0],
navy:[0,0,128],
olive:[128,128,0],
orange:[255,165,0],
pink:[255,192,203],
purple:[128,0,128],
violet:[128,0,128],
red:[255,0,0],
silver:[192,192,192],
white:[255,255,255],
yellow:[255,255,0]
};

})(jQuery);

//]]>
</script>

<script type='text/javascript'>
//<![CDATA[

var hoverColour = "#FFF";

$(function(){
$("a.hoverBtn").show("fast", function() {
$(this).wrap("<div class=\"hoverBtn\">");
$(this).attr("class", "");
});

//display the hover div
$("div.hoverBtn").show("fast", function() {
//append the background div
$(this).append("<div></div>");

//get link's size
var wid = $(this).children("a").width();
var hei = $(this).children("a").height();

//set div's size
$(this).width(wid);
$(this).height(hei);
$(this).children("div").width(wid);
$(this).children("div").height(hei);

//on link hover
$(this).children("a").hover(function(){
 //store initial link colour
 if ($(this).attr("rel") == "") {
  $(this).attr("rel", $(this).css("color"));
 }
 //fade in the background
 $(this).parent().children("div")
  .stop()
  .css({"display": "none", "opacity": "1"})
  .fadeIn("fast");
 //fade the colour
 $(this) .stop()
  .css({"color": $(this).attr("rel")})
  .animate({"color": hoverColour}, 350);
},function(){
 //fade out the background
 $(this).parent().children("div")
  .stop()
  .fadeOut("slow");
 //fade the colour
 $(this) .stop()
  .animate({"color": $(this).attr("rel")}, 250);
});
});
});

//]]>
</script>

<style type='text/css'>
div.hoverBtn {
position:   relative;
float:   left;
background:  #000000 url(http://3.bp.blogspot.com/_4HKUHirY_2U/SvvwhZbkLRI/AAAAAAAAAK8/r6Z4VoAIi1c/navBG.png) repeat-x 0 0 scroll;
}
div.hoverBtn a {
position:   relative;
z-index:   2;
display:   block;
width:    100px;
height:   30px;
line-height:   30px;
text-align:   center;
font-size:  1.1em;
text-decoration: none;
color:   #000;
background:  transparent none repeat-x 0 0 scroll;
}
div.hoverBtn div {
display:  none;
position:   absolute;
z-index:   1;
top:    0px;
background:  #ffffff url(http://1.bp.blogspot.com/_4HKUHirY_2U/SvvwkpzFInI/AAAAAAAAALE/-MOpUEFRUtY/navHover.png) repeat-x 0 0 scroll;
</style>

NOTE: Please host images yourself.

4.Now go to Layout-->Page Element and click on "Add a gadget" from header section.

5.Select "html/java script" and add the code given below and click save.

<a class="hoverBtn" href="#">Home</a> <a class="hoverBtn" href="#">HTML</a> <a class="hoverBtn" href="#">CSS</a> <a class="hoverBtn" href="#">About</a> <a class="hoverBtn" href="#">Contact</a>

You are done.

Demo | Source