How to check if mod rewrite is enabled on your server
From Joomla! Documentation
Many problems with SEO arise from the fact that a host has not enabled mod_rewrite (Apache setting) on the servers. They often tell you they have (while they have not). You can verify if this is correct or not and if this is causing your server to issue HTTP Error 500.
Here is how to check if mod-rewrite is really enabled!
1. Enable SEO in your administrator:
In Joomla 1.0: Site -> Global Configuration -> SEO: Search Engine Friendly URLs to Yes.
In Joomla 1.5: Site -> Global Configuration -> Site: Search Engine Friendly URLs to Yes, Use Apache mod_rewrite to Yes. (Setting Add suffix to URLs is optional).
2. Rename your htaccess.txt to .htaccess:
Next place ONLY the following lines in your .htaccess:
RewriteEngine On Options +FollowSymLinks RewriteRule ^joomla\.html http://www.joomla.org/? [R=301,L]
3. Now point your browser to: http://www.example.com/joomla.html
(Replace www.example.com with your own domain name in the URL above.)
If it redirects you to joomla.org then mod_rewrite is working. If it gives you an error then mod_rewrite is not working.
Note: if your site is located in a folder such as "/test/" you need to insert the code in the root .htaccess file as follows:
RewriteEngine On Options +FollowSymLinks RewriteRule ^test/joomla\.html http://www.joomla.org/? [R=301,L]