Omer,

Check the following to start with:

a) make sure your interface s0 or s1 has the proper commands
   such as bandwidth, clock rate and correct ip address, and no shut

Since you have not given the config outputs, it is very hard to visualise
what is missing, but compare the following config with yours

      S0                                          S0
Ra# (DCE)---------------------------------------(DTE) Rb#

global command
username Rb password cisco                     username Ra pass cisco

interface s0                                     interface s0
  bandwidth 64                                     bandwidth 64
  clock rate 38400                     
  ip add 10.1.1.1 255.255.255.0                   ip add 10.1.1.2 /24
  encapsulation ppp                               encap  ppp
  ppp authen  chap                                ppp auth chap
  no shut                                         no shut

Ra# debug ppp authen 

To see the ppp negotiation and authentication work,

go to int s 0 
shut and then no shut

make sure you check the following under line console 0:

line con 0
 logging synch
 exec-timeout 0 0

To check which side of the cable is a DCE and hence requires the clock rate
parameters, check the serial cables for any labels or run the following
command in the previlege mode
 
ra# show controller s 0

Don't forget to check the layer two connectivity by running the show cdp
neighbor (show cdp nei detail)

This should work, if you are still having problems then check the IOS
version to see if this version has any known bugs already documented.

The details of this can be found in the CCO Software Centre.

Vijay


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