Follow these steps:
1. Go to: https://picasaweb.google.com
If you are redirected into Google + wait a few seconds until you see the message in yellow "Click here to go back to Picasa Web Albums"
If you don't get this message you can try it on a different browser (i.e.: Mozilla Firefox)
2. Once you are redirected to Picasa have a quick read to the yellow message to understand what happened and the changes to Picasa Web Albums before you dismiss it:
3. Create a new album as normal. You will notice that the option for embedding has gone.
4. Locate the "Actions" menu and select "Album Properties" from the drop-down menu:
5. Modify the option "Visibility" and select "Limited, anyone with the link". Save the changes.
6. Your option for embedding the album should be back: