... I typed a page, then separated two line by some blank space...
I'm not sure how it would matter if the image is in a paragraph of its own. Text should still flow around it, even if the text is in a different paragraph.
Try this, as a test:
1) File > New > Text Document
2) Type: dt, then press F3. This will insert a paragraph of "Dummy Text".
3) Press Enter, once, to make an empty paragraph (a blank line), then make another dummy paragraph below the empty one.
4) Put the cursor on the empty paragraph
5) Insert > Picture > From file; select your image and OK. The text should move above and below the image, but not flow around it.
6) Click on the image to select it.
7) Drag the green handles around the edge of the image to make the image smaller than the document margins. You can't wrap text around an image that takes the whole width of the page.
8) Right click on the image and choose Wrap > Page. The text should now flow around the image.
The sequence should look like this: