How do I run my blog from a different directory than wordpress?

How do I run my blog from a different directory than wordpress? I want the blog URL to be http://mydomain.com/blog/

Please note that I have already read and re-read the how to install in a different directory but have the blog in the root directory. That is not what I am trying to do. I AM trying to avoid having to download and then re-upload WP if at all possible.

I also need to make this work so that automatic upgrades work, well, automatically.

I use Westhost and it supports automatic install of WordPress, but always places the files in the folder http://mydomain.com/wordpress.

I have created a folder http://mydomain.com/blog/ and placed the index.php from WordPress (not the theme) and a .htaccess file in this folder.

I have selected custom permalinks and saved them. I have refreshed everything and cleared cache but the blog page comes up blank!

This is my index.php file.

<?php
/**
 * Front to the WordPress application. This file doesn't do anything, but loads
 * wp-blog-header.php which does and tells WordPress to load the theme.
 *
 * @package WordPress
 */

/**
 * Tells WordPress to load the WordPress theme and output it.
 *
 * @var bool
 */
define('WP_USE_THEMES', true);

/** Loads the WordPress Environment and Template */
require('./wordpress/wp-blog-header.php');
?>

The following is what my .htaccess file reads. I got this code here in the forums.

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /blog/
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /blog/index.php [L]
</IfModule>

# END WordPress
# END WordPress