I think beveling is a good option. Select the edges as pictured below, press Ctrl+B and drag the cursor in opposite direction to the edges' location. Use Mouse Scroll to add some divisions. Finally change the rest of the mesh topology to easily add a Subsurf and edge creases.
Here's the final result with a changed topology.
And here's the .blend with improved topology: http://blend-exchange.giantcowfilms.com/embedImage.png?bid=1117