How to solve the wordpress pretty permalink 404 error?

This is the most common error found in setting wordpress pretty permalink even for the latest wordpress version 2.7. The following might be of some help for those who have just installed wordpress 2.7 but required some technical know-how and access to the FTP to do it.

1. Make sure your web hosting server has mod_rewrite module installed. If you do not know what this is, you can copy the following paragraph in purple color and email to your web hosting company. Tell them you are installing wordpress and ask them to check for you the following requirements.
   Requirements:
   • Apache web server with the mod_rewrite module installed
   • In WordPress’s home directory,
     
     • The FollowSymLinks option enabled
       
     • FileInfo directives allowed (e.g. AllowOverride FileInfo, AllowOverride All)
     • An .htaccess file (if this file is missing, WordPress will try to create it when you activate “pretty” permalinks)
     • If you want WordPress to update the .htaccess file automatically, WordPress will need write access to the file.
       

   If your web hosting company is kind enough, they can do the above for you. If not, proceed to step 2.

2. Once you received confirmation from your web hosting company that it has mod_rewrite module installed, you can go to the wordpress admin panel, click on Permalinks under Setting on the bottom left hand corner. Click on Custom Structure and enter /%category%/%postname%/ if you want your URL to display category and the post name for example
   www.yourdomain.com/blog/article/my-article01. However for those who prefer just to have the post name without the category then enter /%postname%/ in the Custom Structure entry box. Click on Save Changes to save all the changes.
3. Once you have made the changes, wordpress will tell you whether you need to update your .htaccess file. This message will appear on the top of the page in light yellow box. If your .htaccess file were writable, wordpress could do this automatically, however if this is not, then you need to copy the code from the grey box at the bottom of the page and paste it into the .htaccess file manually in your server. The .htaccess file is located in the root directory, you can do a FTP to access it. Please note that if your wordpress is installed in the subdirectory, the .htaccess file must still be located in the root directory only, not the subdirectory. If you cannot see the file as some web servers tend to hide files that start with a period by default, you can display the hidden file by enabling it in your FTP setting. As individual FTP software has its own setting, check your FTP help file on how to display hidden file.
4. If there is no .htaccess file, you can create it manually by using the text editor, paste the previous code into the text editor and save the filename as htaccess.txt then upload it to the root directory. You can change the file name to .htaccess once you have uploaded it to the server.
5. When you have the .htaccess file in place, the 404 error should be resolved now.