<div class="btn-group">
 <a class="btn" title="Insert picture (or just drag & drop)" id="pictureBtn">
 <i class="icon-picture"></i></a>
  <input type="file" data-role="magic-overlay" 
   data-target="#pictureBtn"
  data-edit="insertImage" />
</div>

toolbar.find('input[type=file][data-' + options.commandRole + ']')
   .change( ...
   ...
commandRole : 'edit',

restoreSelection();
if (this.type === 'file' && this.files && this.files.length > 0) {
 insertFiles(this.files);
}
saveSelection();
his.value = '';

insertFiles = function (files) {
  editor.focus();
  $.each(files, function (idx, fileInfo) {
   if (/^image\//.test(fileInfo.type)) {
   $.when(readFileIntoDataUrl(fileInfo)).done(function (dataUrl) {
    execCommand('insertimage', dataUrl);
   }).fail(function (e) {
    options.fileUploadError("file-reader", e);
   });
   } else {
   options.fileUploadError("unsupported-file-type", fileInfo.type);
   }
  });
  }

$.ajaxFileUpload({
  url : ...,
  secureurl : false,
  fileElementId : ...,
  dataType : "json",
  success : function(obj) {
   ...
  },
  error : function() {
   ...
  }
  });

<input type="file" id="pictureInput" name="picture"
   data-role="magic-overlay" data-target="#pictureBtn"
   data-edit="insertImage" action="..." />

var uploadFileToServer = function(id, action, callback) {
 $.ajaxFileUpload({
  url : action,
  secureurl : false,
  fileElementId : id,
  dataType : 'json',
  success : function(obj) {
  if (obj.status) {
   callback(obj.imgsrc);
  } else
   options.fileUploadError("server-internal-exception",
    obj.message);
  },
  error : function() {
  options.fileUploadErroe("upload-failure", "");
  }
 });

insertFiles = function(files, id, action) {
  editor.focus();
  $.each(files, function(idx, fileInfo) {
  if (/^image\//.test(fileInfo.type)) {
   /*
   * $.when(readFileIntoDataUrl(fileInfo)).done(function(dataUrl) {
   * execCommand('insertimage', dataUrl); }).fail(function(e) {
   * options.fileUploadError("file-reader", e); });
   */
   uploadFileToServer(id, action, function(src) {
   execCommand('insertimage', src);
   });
  } else {
   options.fileUploadError("unsupported-file-type",
    fileInfo.type);
  }
  });

toolbar.find('input[type=file][data-' + options.commandRole + ']')
  .change(
   function() {
    restoreSelection();
    if (this.type === 'file' && this.files
     && this.files.length > 0) {
     insertFiles(this.files, $(this).attr('id'),
      $(this).attr('action'));
    }
    saveSelection();
    this.value = '';
    });