Ok so im still having this issue and its getting bloody irritating, i open browser minecraft and head in server and it immediately pauses the game and i can click on everything except back to game, and i cant hit the escape key to get back to game either, its very irritating and i wish to know if there is some way to remedy this, also ever since the 1.2.5 update, when in browser it asks you to trust content from mojang and wont let you play otherwise, it has never done this before and i wanted to know if this had anything to do with it, in addition my computer has issues with https sites which may also be causing this issue. Please help!

First off, I know you have to unlock your keys when you start playing Minecraft in browser. Press B or hit your mouse buttons. Have you tried downloading the game instead of playing in browser?

The download version of the game takes up no more room then the browser one really but it may help <object class="emojione" data="https://resources.enjin.com/1489581540/themes/core/images/emojione/svg/1f642.svg?0" type="image/svg+xml" standby=":)">:)</object>

When it asks you to trust content from Mojang, that will be because it needs to download the minecraft files on to your computer, just like if you were playing the downloaded version, so when you updated it probably asked that because it needed to update the files on your computer. You could try deleting you .minecraft and trying to reconnect to the server, which will effectively force update your files, or (I would suggest) download the game and try it, if it doesn't work then, force update from the client, through the options button in the login screen. If none of that works I don't have any idea what it could be!

Thing is, when i am playing in browser its not on my computer, where i play in the download version, therefore i have 2 play in browser

No, when you play in the browser it's still downloaded to your computer, and you can easily launch the "local" version if Java is in your PATH environment variable or you know where java is installed. You can't view anything online without it being transferred to your computer in some way. If you don't believe me, any servers you add with the downloadable version will still be listed if you play in browser – it's using the exact same data. You only miss out on having the launcher if you play in your browser.

C:\Users\yourname\AppData\Roaming\.minecraft\bin\minecraft.jar

With regard to your actual problem it sounds like the Java applet isn't getting focus. Try clicking outside the applet area on the rest of the page before you start the game so your browser can properly give input focus to Java. Just tested on Chrome and I can't reproduce the issue.