In this paper, we applied the concept of diminished reality to remove content-irrelevant pedestrian (i.e., real object) in the context of handheld augmented reality (AR). We prepared three view conditions: in Transparent (TP) condition, we removed the pedestrian entirely; in Semi-transparent (STP) condition, the pedestrian became semi-transparent; lastly, in Default (DF) condition, the pedestrian appeared as is. We conducted a user study to compare the effects of the three conditions on users' engagement and perception of a virtual pet in the AR content. Our findings revealed that users felt less distracted to the AR content in TP and STP conditions, compared to the DF condition. Furthermore, users felt the virtual pet as more life-like, its behavior more plausible, and felt a higher spatial presence in the real environment, in the TP condition.