I'll go along enthusiastically with littlemissattitude and say "all of the above."
Geeze, Brian! You should know better than to set me off on this topic! What . . . are you looking for another twenty-page thesis from me?!
Okay, here goes. Hopefully for less than twenty poges.
Some folks get around the laws of physics question by observing that magic may simply represent science we don't yet understand, but I tend to feel that begs the question. I, personally, believe that magic DOES operate according to real-world laws of physics, specifically with the Alice-in-Wonderland weirdness of quantum physics, where things affect one another across impossible distances through nonlocality, and an observer is necessary to collapse Schrodinger wave functions into what we are pleased to call "reality." [I'm thoroughly hyped up on this topic, I fear; the book I'm currently writing is about magic and how it might relate to quantum physics!]
The vast majority of real-world magical effects (I won't say all, but examples I can give are all anecdotal) are expressed as what we would call meaningful coincidence, or what Jung called synchronicity. This CAN reflect the fact that we subjectively reinterpret what happens around us in a way that suggests magic is at work . . . but, damn it, when impossibly implausible coincidence happens AGAIN and AGAIN and AGAIN you begin to get the feeling that there's more to it than that.
Here's one example. As a demonstration to my witchcraft class a few months ago, I did a simple ritual aimed at bringing me a check for $100.00. A few days later, I received a check in the mail for 99.52 which I was able to show the class. (We had great fun laughing about the "astral tax" of 48 cents . . . or about the possibility that I just didn't believe hard enough!)
Now--I'm a writer. I get royalty checks twice in the year, in the spring and in the fall. The check for $99.52 was my share of the royalties for an anthology of short stories to which I contributed a couple of years ago. It wasn't like the check materialized out of nowhere. It came to me through good, solid, real-world and explainable mechanisms.
But why that amount . . . and why EXACTLY at that time? The idea is that somehow I shaped reality, shaped the flow of the universe around me, so that certain things happened in a certain way in conformance with my will.
My belief is that all of us have the inate ability to reshape our reality, that, in fact, and in conformity to the laws of quantum physics, we are far more involved in creating reality than we realize, literally on a moment-to-moment basis. In fact, as conscious beings, this is what we do; it defines us. Most of us create our reality unconsciously, and often under the dictates of our culture, our family upbringing, our education, and the workings of random chance. Witches and magicians seek to take a conscious responsibility for that creative process. As such, yes, magic is all in the mind. However, because of the nature of physical reality, what is in the mind can shape or reshape reality, and thus has a real-world expression.
Littlemissattitude is absolutely correct. I have never walked on water, conjured fire with my bare hands, or levitated in my physical body--all apparent violations of physical law. Though I don't rule out the possibility that this sort of thing is possible--and there is plenty of anecdotal evidence that it is--this is not the usual expression of magic. I HAVE seen coincidence and chance, so-called, work in astonishing ways in conformity to will, ritual, belief, and magical practice, and have seen this so often that I can now with some confidence RELY on it. In this way, magic is, I feel, decidedly objective as well as subjective.