Solution:
First put a .htaccess
file in your /var/www/
folder and make it writable. Second, suppose your wordpress blog is in /var/www/blog
folder then go to /etc/apache2/sites-available/
and make following changes in default file
<Directory /var/www/>
Options +ExecCGI
Options Indexes FollowSymLinks MultiViews
AllowOverride All
Order allow,deny
allow from all
</Directory>
<Directory /var/www/blog/>
Options Indexes FollowSymLinks MultiViews
AllowOverride All
Order allow,deny
allow from all
</Directory>
Now restart apache to make sure changes have taken effect. Hope it helps.