failing to establish connection between Postgres db and gwt

I am using Postgres and gwt 2.0 for one of my applications. I am facing problem connecting to the database. When I try to connect it gives "ClassNotFoundException". Here is what I get when I try to connect to database:

java.lang.ClassNotFoundException: org.postgresql.Driver
    at java.net.URLClassLoader$1.run(URLClassLoader.java:200)
    at java.security.AccessController.doPrivileged(Native Method)
    at java.net.URLClassLoader.findClass(URLClassLoader.java:188)
    at java.lang.ClassLoader.loadClass(ClassLoader.java:307)
    at com.google.appengine.tools.development.IsolatedAppClassLoader.loadClass(IsolatedAppClassLoader.java:151)
    at java.lang.ClassLoader.loadClass(ClassLoader.java:252)
    at java.lang.ClassLoader.loadClassInternal(ClassLoader.java:320)
    at java.lang.Class.forName0(Native Method)
    at java.lang.Class.forName(Class.java:169)
    at com.e.r.d.server.db.SQLManager.<init>(SQLManager.java:18)
    at com.e.r.d.server.db.EntityRelationManager.<init>(EntityRelationManager.java:10)
    at com.e.r.d.server.EntityRelationServiceImpl.<clinit>(EntityRelationServiceImpl.java:21)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance0(Native Method)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance(NativeConstructorAccessorImpl.java:39)
    at sun.reflect.DelegatingConstructorAccessorImpl.newInstance(DelegatingConstructorAccessorImpl.java:27)
    at java.lang.reflect.Constructor.newInstance(Constructor.java:513)
    at java.lang.Class.newInstance0(Class.java:355)
    at java.lang.Class.newInstance(Class.java:308)
    at org.mortbay.jetty.servlet.Holder.newInstance(Holder.java:153)
    at org.mortbay.jetty.servlet.ServletHolder.getServlet(ServletHolder.java:339)
    at org.mortbay.jetty.servlet.ServletHolder.handle(ServletHolder.java:463)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1093)
    at com.google.appengine.api.blobstore.dev.ServeBlobFilter.doFilter(ServeBlobFilter.java:51)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.apphosting.utils.servlet.TransactionCleanupFilter.doFilter(TransactionCleanupFilter.java:43)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.appengine.tools.development.StaticFileFilter.doFilter(StaticFileFilter.java:121)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at org.mortbay.jetty.servlet.ServletHandler.handle(ServletHandler.java:360)
    at org.mortbay.jetty.security.SecurityHandler.handle(SecurityHandler.java:216)
    at org.mortbay.jetty.servlet.SessionHandler.handle(SessionHandler.java:181)
    at org.mortbay.jetty.handler.ContextHandler.handle(ContextHandler.java:712)
    at org.mortbay.jetty.webapp.WebAppContext.handle(WebAppContext.java:405)
    at com.google.apphosting.utils.jetty.DevAppEngineWebAppContext.handle(DevAppEngineWebAppContext.java:70)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at com.google.appengine.tools.development.JettyContainerService$ApiProxyHandler.handle(JettyContainerService.java:352)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at org.mortbay.jetty.Server.handle(Server.java:313)
    at org.mortbay.jetty.HttpConnection.handleRequest(HttpConnection.java:506)
    at org.mortbay.jetty.HttpConnection$RequestHandler.content(HttpConnection.java:844)
    at org.mortbay.jetty.HttpParser.parseNext(HttpParser.java:644)
    at org.mortbay.jetty.HttpParser.parseAvailable(HttpParser.java:211)
    at org.mortbay.jetty.HttpConnection.handle(HttpConnection.java:381)
    at org.mortbay.io.nio.SelectChannelEndPoint.run(SelectChannelEndPoint.java:396)
    at org.mortbay.thread.BoundedThreadPool$PoolThread.run(BoundedThreadPool.java:442)
Mar 15, 2010 1:17:41 AM com.google.apphosting.utils.jetty.JettyLogger warn
WARNING: Nested in javax.servlet.ServletException: init:
java.lang.ExceptionInInitializerError
    at sun.reflect.NativeConstructorAccessorImpl.newInstance0(Native Method)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance(NativeConstructorAccessorImpl.java:39)
    at sun.reflect.DelegatingConstructorAccessorImpl.newInstance(DelegatingConstructorAccessorImpl.java:27)
    at java.lang.reflect.Constructor.newInstance(Constructor.java:513)
    at java.lang.Class.newInstance0(Class.java:355)
    at java.lang.Class.newInstance(Class.java:308)
    at org.mortbay.jetty.servlet.Holder.newInstance(Holder.java:153)
    at org.mortbay.jetty.servlet.ServletHolder.getServlet(ServletHolder.java:339)
    at org.mortbay.jetty.servlet.ServletHolder.handle(ServletHolder.java:463)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1093)
    at com.google.appengine.api.blobstore.dev.ServeBlobFilter.doFilter(ServeBlobFilter.java:51)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.apphosting.utils.servlet.TransactionCleanupFilter.doFilter(TransactionCleanupFilter.java:43)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.appengine.tools.development.StaticFileFilter.doFilter(StaticFileFilter.java:121)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at org.mortbay.jetty.servlet.ServletHandler.handle(ServletHandler.java:360)
    at org.mortbay.jetty.security.SecurityHandler.handle(SecurityHandler.java:216)
    at org.mortbay.jetty.servlet.SessionHandler.handle(SessionHandler.java:181)
    at org.mortbay.jetty.handler.ContextHandler.handle(ContextHandler.java:712)
    at org.mortbay.jetty.webapp.WebAppContext.handle(WebAppContext.java:405)
    at com.google.apphosting.utils.jetty.DevAppEngineWebAppContext.handle(DevAppEngineWebAppContext.java:70)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at com.google.appengine.tools.development.JettyContainerService$ApiProxyHandler.handle(JettyContainerService.java:352)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at org.mortbay.jetty.Server.handle(Server.java:313)
    at org.mortbay.jetty.HttpConnection.handleRequest(HttpConnection.java:506)
    at org.mortbay.jetty.HttpConnection$RequestHandler.content(HttpConnection.java:844)
    at org.mortbay.jetty.HttpParser.parseNext(HttpParser.java:644)
    at org.mortbay.jetty.HttpParser.parseAvailable(HttpParser.java:211)
    at org.mortbay.jetty.HttpConnection.handle(HttpConnection.java:381)
    at org.mortbay.io.nio.SelectChannelEndPoint.run(SelectChannelEndPoint.java:396)
    at org.mortbay.thread.BoundedThreadPool$PoolThread.run(BoundedThreadPool.java:442)
Caused by: java.security.AccessControlException: access denied (java.lang.RuntimePermission exitVM.1)
    at java.security.AccessControlContext.checkPermission(AccessControlContext.java:323)
    at java.security.AccessController.checkPermission(AccessController.java:546)
    at java.lang.SecurityManager.checkPermission(SecurityManager.java:532)
    at com.google.appengine.tools.development.DevAppServerFactory$CustomSecurityManager.checkPermission(DevAppServerFactory.java:166)
    at java.lang.SecurityManager.checkExit(SecurityManager.java:744)
    at java.lang.Runtime.exit(Runtime.java:88)
    at java.lang.System.exit(System.java:906)
    at com.e.r.d.server.db.SQLManager.<init>(SQLManager.java:22)
    at com.e.r.d.server.db.EntityRelationManager.<init>(EntityRelationManager.java:10)
    at com.e.r.d.server.EntityRelationServiceImpl.<clinit>(EntityRelationServiceImpl.java:21)
    ... 33 more
Mar 15, 2010 1:17:41 AM com.google.apphosting.utils.jetty.JettyLogger warn
WARNING: Nested in java.lang.ExceptionInInitializerError:
java.security.AccessControlException: access denied (java.lang.RuntimePermission exitVM.1)
    at java.security.AccessControlContext.checkPermission(AccessControlContext.java:323)
    at java.security.AccessController.checkPermission(AccessController.java:546)
    at java.lang.SecurityManager.checkPermission(SecurityManager.java:532)
    at com.google.appengine.tools.development.DevAppServerFactory$CustomSecurityManager.checkPermission(DevAppServerFactory.java:166)
    at java.lang.SecurityManager.checkExit(SecurityManager.java:744)
    at java.lang.Runtime.exit(Runtime.java:88)
    at java.lang.System.exit(System.java:906)
    at com.e.r.d.server.db.SQLManager.<init>(SQLManager.java:22)
    at com.e.r.d.server.db.EntityRelationManager.<init>(EntityRelationManager.java:10)
    at com.e.r.d.server.EntityRelationServiceImpl.<clinit>(EntityRelationServiceImpl.java:21)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance0(Native Method)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance(NativeConstructorAccessorImpl.java:39)
    at sun.reflect.DelegatingConstructorAccessorImpl.newInstance(DelegatingConstructorAccessorImpl.java:27)
    at java.lang.reflect.Constructor.newInstance(Constructor.java:513)
    at java.lang.Class.newInstance0(Class.java:355)
    at java.lang.Class.newInstance(Class.java:308)
    at org.mortbay.jetty.servlet.Holder.newInstance(Holder.java:153)
    at org.mortbay.jetty.servlet.ServletHolder.getServlet(ServletHolder.java:339)
    at org.mortbay.jetty.servlet.ServletHolder.handle(ServletHolder.java:463)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1093)
    at com.google.appengine.api.blobstore.dev.ServeBlobFilter.doFilter(ServeBlobFilter.java:51)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.apphosting.utils.servlet.TransactionCleanupFilter.doFilter(TransactionCleanupFilter.java:43)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.appengine.tools.development.StaticFileFilter.doFilter(StaticFileFilter.java:121)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at org.mortbay.jetty.servlet.ServletHandler.handle(ServletHandler.java:360)
    at org.mortbay.jetty.security.SecurityHandler.handle(SecurityHandler.java:216)
    at org.mortbay.jetty.servlet.SessionHandler.handle(SessionHandler.java:181)
    at org.mortbay.jetty.handler.ContextHandler.handle(ContextHandler.java:712)
    at org.mortbay.jetty.webapp.WebAppContext.handle(WebAppContext.java:405)
    at com.google.apphosting.utils.jetty.DevAppEngineWebAppContext.handle(DevAppEngineWebAppContext.java:70)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at com.google.appengine.tools.development.JettyContainerService$ApiProxyHandler.handle(JettyContainerService.java:352)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at org.mortbay.jetty.Server.handle(Server.java:313)
    at org.mortbay.jetty.HttpConnection.handleRequest(HttpConnection.java:506)
    at org.mortbay.jetty.HttpConnection$RequestHandler.content(HttpConnection.java:844)
    at org.mortbay.jetty.HttpParser.parseNext(HttpParser.java:644)
    at org.mortbay.jetty.HttpParser.parseAvailable(HttpParser.java:211)
    at org.mortbay.jetty.HttpConnection.handle(HttpConnection.java:381)
    at org.mortbay.io.nio.SelectChannelEndPoint.run(SelectChannelEndPoint.java:396)
    at org.mortbay.thread.BoundedThreadPool$PoolThread.run(BoundedThreadPool.java:442)
Mar 15, 2010 1:17:41 AM com.google.apphosting.utils.jetty.JettyLogger warn
WARNING: Nested in javax.servlet.ServletException: init:
java.lang.NoClassDefFoundError: Could not initialize class com.e.r.d.server.EntityRelationServiceImpl
    at sun.reflect.NativeConstructorAccessorImpl.newInstance0(Native Method)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance(NativeConstructorAccessorImpl.java:39)
    at sun.reflect.DelegatingConstructorAccessorImpl.newInstance(DelegatingConstructorAccessorImpl.java:27)
    at java.lang.reflect.Constructor.newInstance(Constructor.java:513)
    at java.lang.Class.newInstance0(Class.java:355)
    at java.lang.Class.newInstance(Class.java:308)
    at org.mortbay.jetty.servlet.Holder.newInstance(Holder.java:153)
    at org.mortbay.jetty.servlet.ServletHolder.getServlet(ServletHolder.java:339)
    at org.mortbay.jetty.servlet.ServletHolder.handle(ServletHolder.java:463)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1093)
    at com.google.appengine.api.blobstore.dev.ServeBlobFilter.doFilter(ServeBlobFilter.java:51)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.apphosting.utils.servlet.TransactionCleanupFilter.doFilter(TransactionCleanupFilter.java:43)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.appengine.tools.development.StaticFileFilter.doFilter(StaticFileFilter.java:121)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at org.mortbay.jetty.servlet.ServletHandler.handle(ServletHandler.java:360)
    at org.mortbay.jetty.security.SecurityHandler.handle(SecurityHandler.java:216)
    at org.mortbay.jetty.servlet.SessionHandler.handle(SessionHandler.java:181)
    at org.mortbay.jetty.handler.ContextHandler.handle(ContextHandler.java:712)
    at org.mortbay.jetty.webapp.WebAppContext.handle(WebAppContext.java:405)
    at com.google.apphosting.utils.jetty.DevAppEngineWebAppContext.handle(DevAppEngineWebAppContext.java:70)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at com.google.appengine.tools.development.JettyContainerService$ApiProxyHandler.handle(JettyContainerService.java:352)
    at org.mortbay.jetty.handler.HandlerW开发者_高级运维rapper.handle(HandlerWrapper.java:139)
    at org.mortbay.jetty.Server.handle(Server.java:313)
    at org.mortbay.jetty.HttpConnection.handleRequest(HttpConnection.java:506)
    at org.mortbay.jetty.HttpConnection$RequestHandler.content(HttpConnection.java:844)
    at org.mortbay.jetty.HttpParser.parseNext(HttpParser.java:644)
    at org.mortbay.jetty.HttpParser.parseAvailable(HttpParser.java:211)
    at org.mortbay.jetty.HttpConnection.handle(HttpConnection.java:381)
    at org.mortbay.io.nio.SelectChannelEndPoint.run(SelectChannelEndPoint.java:396)
    at org.mortbay.thread.BoundedThreadPool$PoolThread.run(BoundedThreadPool.java:442)
Mar 15, 2010 1:17:41 AM com.google.apphosting.utils.jetty.JettyLogger warn
WARNING: /erd1/erpath
java.lang.ExceptionInInitializerError
    at sun.reflect.NativeConstructorAccessorImpl.newInstance0(Native Method)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance(NativeConstructorAccessorImpl.java:39)
    at sun.reflect.DelegatingConstructorAccessorImpl.newInstance(DelegatingConstructorAccessorImpl.java:27)
    at java.lang.reflect.Constructor.newInstance(Constructor.java:513)
    at java.lang.Class.newInstance0(Class.java:355)
    at java.lang.Class.newInstance(Class.java:308)
    at org.mortbay.jetty.servlet.Holder.newInstance(Holder.java:153)
    at org.mortbay.jetty.servlet.ServletHolder.getServlet(ServletHolder.java:339)
    at org.mortbay.jetty.servlet.ServletHolder.handle(ServletHolder.java:463)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1093)
    at com.google.appengine.api.blobstore.dev.ServeBlobFilter.doFilter(ServeBlobFilter.java:51)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.apphosting.utils.servlet.TransactionCleanupFilter.doFilter(TransactionCleanupFilter.java:43)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.appengine.tools.development.StaticFileFilter.doFilter(StaticFileFilter.java:121)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at org.mortbay.jetty.servlet.ServletHandler.handle(ServletHandler.java:360)
    at org.mortbay.jetty.security.SecurityHandler.handle(SecurityHandler.java:216)
    at org.mortbay.jetty.servlet.SessionHandler.handle(SessionHandler.java:181)
    at org.mortbay.jetty.handler.ContextHandler.handle(ContextHandler.java:712)
    at org.mortbay.jetty.webapp.WebAppContext.handle(WebAppContext.java:405)
    at com.google.apphosting.utils.jetty.DevAppEngineWebAppContext.handle(DevAppEngineWebAppContext.java:70)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at com.google.appengine.tools.development.JettyContainerService$ApiProxyHandler.handle(JettyContainerService.java:352)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at org.mortbay.jetty.Server.handle(Server.java:313)
    at org.mortbay.jetty.HttpConnection.handleRequest(HttpConnection.java:506)
    at org.mortbay.jetty.HttpConnection$RequestHandler.content(HttpConnection.java:844)
    at org.mortbay.jetty.HttpParser.parseNext(HttpParser.java:644)
    at org.mortbay.jetty.HttpParser.parseAvailable(HttpParser.java:211)
    at org.mortbay.jetty.HttpConnection.handle(HttpConnection.java:381)
    at org.mortbay.io.nio.SelectChannelEndPoint.run(SelectChannelEndPoint.java:396)
    at org.mortbay.thread.BoundedThreadPool$PoolThread.run(BoundedThreadPool.java:442)
Caused by: java.security.AccessControlException: access denied (java.lang.RuntimePermission exitVM.1)
    at java.security.AccessControlContext.checkPermission(AccessControlContext.java:323)
    at java.security.AccessController.checkPermission(AccessController.java:546)
    at java.lang.SecurityManager.checkPermission(SecurityManager.java:532)
    at com.google.appengine.tools.development.DevAppServerFactory$CustomSecurityManager.checkPermission(DevAppServerFactory.java:166)
    at java.lang.SecurityManager.checkExit(SecurityManager.java:744)
    at java.lang.Runtime.exit(Runtime.java:88)
    at java.lang.System.exit(System.java:906)
    at com.e.r.d.server.db.SQLManager.<init>(SQLManager.java:22)
    at com.e.r.d.server.db.EntityRelationManager.<init>(EntityRelationManager.java:10)
    at com.e.r.d.server.EntityRelationServiceImpl.<clinit>(EntityRelationServiceImpl.java:21)
    ... 33 more
Mar 15, 2010 1:17:41 AM com.google.apphosting.utils.jetty.JettyLogger warn
WARNING: Nested in java.lang.ExceptionInInitializerError:
java.security.AccessControlException: access denied (java.lang.RuntimePermission exitVM.1)
    at java.security.AccessControlContext.checkPermission(AccessControlContext.java:323)
    at java.security.AccessController.checkPermission(AccessController.java:546)
    at java.lang.SecurityManager.checkPermission(SecurityManager.java:532)
    at com.google.appengine.tools.development.DevAppServerFactory$CustomSecurityManager.checkPermission(DevAppServerFactory.java:166)
    at java.lang.SecurityManager.checkExit(SecurityManager.java:744)
    at java.lang.Runtime.exit(Runtime.java:88)
    at java.lang.System.exit(System.java:906)
    at com.e.r.d.server.db.SQLManager.<init>(SQLManager.java:22)
    at com.e.r.d.server.db.EntityRelationManager.<init>(EntityRelationManager.java:10)
    at com.e.r.d.server.EntityRelationServiceImpl.<clinit>(EntityRelationServiceImpl.java:21)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance0(Native Method)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance(NativeConstructorAccessorImpl.java:39)
    at sun.reflect.DelegatingConstructorAccessorImpl.newInstance(DelegatingConstructorAccessorImpl.java:27)
    at java.lang.reflect.Constructor.newInstance(Constructor.java:513)
    at java.lang.Class.newInstance0(Class.java:355)
    at java.lang.Class.newInstance(Class.java:308)
    at org.mortbay.jetty.servlet.Holder.newInstance(Holder.java:153)
    at org.mortbay.jetty.servlet.ServletHolder.getServlet(ServletHolder.java:339)
    at org.mortbay.jetty.servlet.ServletHolder.handle(ServletHolder.java:463)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1093)
    at com.google.appengine.api.blobstore.dev.ServeBlobFilter.doFilter(ServeBlobFilter.java:51)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.apphosting.utils.servlet.TransactionCleanupFilter.doFilter(TransactionCleanupFilter.java:43)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.appengine.tools.development.StaticFileFilter.doFilter(StaticFileFilter.java:121)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at org.mortbay.jetty.servlet.ServletHandler.handle(ServletHandler.java:360)
    at org.mortbay.jetty.security.SecurityHandler.handle(SecurityHandler.java:216)
    at org.mortbay.jetty.servlet.SessionHandler.handle(SessionHandler.java:181)
    at org.mortbay.jetty.handler.ContextHandler.handle(ContextHandler.java:712)
    at org.mortbay.jetty.webapp.WebAppContext.handle(WebAppContext.java:405)
    at com.google.apphosting.utils.jetty.DevAppEngineWebAppContext.handle(DevAppEngineWebAppContext.java:70)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at com.google.appengine.tools.development.JettyContainerService$ApiProxyHandler.handle(JettyContainerService.java:352)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at org.mortbay.jetty.Server.handle(Server.java:313)
    at org.mortbay.jetty.HttpConnection.handleRequest(HttpConnection.java:506)
    at org.mortbay.jetty.HttpConnection$RequestHandler.content(HttpConnection.java:844)
    at org.mortbay.jetty.HttpParser.parseNext(HttpParser.java:644)
    at org.mortbay.jetty.HttpParser.parseAvailable(HttpParser.java:211)
    at org.mortbay.jetty.HttpConnection.handle(HttpConnection.java:381)
    at org.mortbay.io.nio.SelectChannelEndPoint.run(SelectChannelEndPoint.java:396)
    at org.mortbay.thread.BoundedThreadPool$PoolThread.run(BoundedThreadPool.java:442)
Mar 15, 2010 1:17:41 AM com.google.apphosting.utils.jetty.JettyLogger warn
WARNING: /erd1/erpath
java.lang.NoClassDefFoundError: Could not initialize class com.e.r.d.server.EntityRelationServiceImpl
    at sun.reflect.NativeConstructorAccessorImpl.newInstance0(Native Method)
    at sun.reflect.NativeConstructorAccessorImpl.newInstance(NativeConstructorAccessorImpl.java:39)
    at sun.reflect.DelegatingConstructorAccessorImpl.newInstance(DelegatingConstructorAccessorImpl.java:27)
    at java.lang.reflect.Constructor.newInstance(Constructor.java:513)
    at java.lang.Class.newInstance0(Class.java:355)
    at java.lang.Class.newInstance(Class.java:308)
    at org.mortbay.jetty.servlet.Holder.newInstance(Holder.java:153)
    at org.mortbay.jetty.servlet.ServletHolder.getServlet(ServletHolder.java:339)
    at org.mortbay.jetty.servlet.ServletHolder.handle(ServletHolder.java:463)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1093)
    at com.google.appengine.api.blobstore.dev.ServeBlobFilter.doFilter(ServeBlobFilter.java:51)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.apphosting.utils.servlet.TransactionCleanupFilter.doFilter(TransactionCleanupFilter.java:43)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at com.google.appengine.tools.development.StaticFileFilter.doFilter(StaticFileFilter.java:121)
    at org.mortbay.jetty.servlet.ServletHandler$CachedChain.doFilter(ServletHandler.java:1084)
    at org.mortbay.jetty.servlet.ServletHandler.handle(ServletHandler.java:360)
    at org.mortbay.jetty.security.SecurityHandler.handle(SecurityHandler.java:216)
    at org.mortbay.jetty.servlet.SessionHandler.handle(SessionHandler.java:181)
    at org.mortbay.jetty.handler.ContextHandler.handle(ContextHandler.java:712)
    at org.mortbay.jetty.webapp.WebAppContext.handle(WebAppContext.java:405)
    at com.google.apphosting.utils.jetty.DevAppEngineWebAppContext.handle(DevAppEngineWebAppContext.java:70)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at com.google.appengine.tools.development.JettyContainerService$ApiProxyHandler.handle(JettyContainerService.java:352)
    at org.mortbay.jetty.handler.HandlerWrapper.handle(HandlerWrapper.java:139)
    at org.mortbay.jetty.Server.handle(Server.java:313)
    at org.mortbay.jetty.HttpConnection.handleRequest(HttpConnection.java:506)
    at org.mortbay.jetty.HttpConnection$RequestHandler.content(HttpConnection.java:844)
    at org.mortbay.jetty.HttpParser.parseNext(HttpParser.java:644)
    at org.mortbay.jetty.HttpParser.parseAvailable(HttpParser.java:211)
    at org.mortbay.jetty.HttpConnection.handle(HttpConnection.java:381)
    at org.mortbay.io.nio.SelectChannelEndPoint.run(SelectChannelEndPoint.java:396)
    at org.mortbay.thread.BoundedThreadPool$PoolThread.run(BoundedThreadPool.java:442)

I have included the Postgres jar file to the build path of the project.

Question:

1. Is there anywhere else i have to include the postgre?
2. While creating GWT project i did not uncheck app engine. is it a problem?
3. can someone tell me what i am doing wrong?

Any input will be of great help. Thank you.

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we probably need more information about where you're running this application but you should keep in mind that for most dependencies the jar needs to be on the classpath at build time and at runtime. This usually means packaging your jar dependencies into your build jar.

The fact that there's some appengine related stuff in your stacktrace makes me wonder about your runtime environment. I know next to nothing about appengine but I didn't think it provided a postgresql instance.