First, buy the right LEDs. Every good vendor should have them in many varieties, with different angle of light dispersal and different plastic for the lens (clear, colored or diffused).
I guess you could also sand the LED, with some 400 grit (or so) sandpaper.
I have painted LEDs with a thin layer of acrylic to diffuse them.
If you use a reflector or a housing, make it matt white inside.
Put some diffusing paper or plastic film in front of it. A drawback with paper is that you will also illuminate the grain in the paper and that might not be the effect you are looking for.