I am looking for a general algorithm to smoothly transition between two colors.
For example, this image is taken from Wikipedia and shows a transition from orange to
A simple linear interpolation of the R,G,B values will do it.
trumpetlicks has shown that the image you used is not a pure linear interpolation. But I think an interpolation gives you the effect you're looking for. Below I show an image with a linear interpolation on top and your original image on the bottom.

And here's the (Python) code that produced it:
for y in range(height/2):
for x in range(width):
p = x / float(width - 1)
r = int((1.0-p) * r1 + p * r2 + 0.5)
g = int((1.0-p) * g1 + p * g2 + 0.5)
b = int((1.0-p) * b1 + p * b2 + 0.5)
pix[x,y] = (r,g,b)