Well, they made it easy for you. Dry milk usually reconstitutes at a ratio of 1 to 4 - that is, 1 cup of milk powder to four cups of water, or 1/4-cup of milk powder to 1 cup of milk. So pretend you had pre-mixed the half-cup of dry milk in the recipe with its two cups of water. That would leave you with 2 cups of milk and no cups of water for the mixture, wouldn’t it?
Interesting to us that the recipe didn't just ask for 2 cups of milk in the first place. Makes us think the recipe is a little suspect, although dry milk is sometimes called for in bread machine recipes that are on a delayed timer, where liquid milk might sit out for much longer than is considered safe.