Overlapping light sources

So I've run into my first problem that I have no clue what to do about.

I have two light sources and when they overlap it looks like what's on the top.

What I want it to look like is what's on the bottom.

<img src="http://s23.postimg.org/3v72ds8cb/Example.png" border="0" />

I basically have no idea of what most of the effects do, so I'm wondering if anyone could point me in the right direction.

A while back Quazi made a "blob gear" cap file which you may find does something similar (combining objects to look as one fluid). I think this would not affect the actual shadows made, so you can instead make the light object invisible and use sprites to represent the lighting.

Anyway, here's the cap: Blob Gears

I did a lot of playing around with the effects and this is what I got.

This is a lot better than what I had, thanks a bunch jayjay.

<img src="http://s7.postimg.org/qc2rfqtl7/New_Lights.gif" border="0" />

Heh I didn't understand the blob cap much at first but you got the effect perfectly, looks great! <img src="smileys/smiley4.gif" border="0" align="middle" />