or, you could have the wave terrain fade to a flat surface at the edges, then cut out a piece of the plane exactly the size of the terrain, put the terrain in the hole, give both the plane and the terrain the same water texture with the texture set to world mapping. and you might be able to create a seamless or almost seamless blend. If you can't get the hole and the terrain to match up perfectly you can always use some clonebrushing in photoshop to get rid of any visible edges.

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