I recently came across a significant problem with Google AppEngine 1.7.2 and Jersey. Whenever I tried to implement my Webservice, I got a 500 error. There was nothing really wrong with the code. So i took a look at the Logs in the Google AppEngine Dashboard and found the following exception:
 
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Uncaught exception from servlet
java.lang.IncompatibleClassChangeError: Implementing class
	at com.google.appengine.runtime.Request.process-642025ace6e60966(Request.java)
	at java.lang.ClassLoader.defineClass1(Native Method)
	at java.lang.ClassLoader.defineClass(ClassLoader.java:634)
	at java.security.SecureClassLoader.defineClass(SecureClassLoader.java:142)
	at java.net.URLClassLoader.defineClass(URLClassLoader.java:277)
	at sun.reflect.GeneratedMethodAccessor5.invoke(Unknown Source)
	at sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:43)
	at java.lang.reflect.Method.invoke(Method.java:616)
	at java.lang.ClassLoader.loadClass(ClassLoader.java:266)
	at com.sun.jersey.api.core.ScanningResourceConfig.init(ScanningResourceConfig.java:68)
	at com.sun.jersey.api.core.PackagesResourceConfig.init(PackagesResourceConfig.java:110)
	at com.sun.jersey.api.core.PackagesResourceConfig.<init>(PackagesResourceConfig.java:76)
	at com.sun.jersey.api.core.PackagesResourceConfig.<init>(PackagesResourceConfig.java:87)
	at com.sun.jersey.spi.container.servlet.WebComponent.createResourceConfig(WebComponent.java:641)
	at com.sun.jersey.spi.container.servlet.WebComponent.createResourceConfig(WebComponent.java:619)
	at com.sun.jersey.spi.container.servlet.WebComponent.init(WebComponent.java:199)
	at com.sun.jersey.spi.container.servlet.ServletContainer.init(ServletContainer.java:307)
	at com.sun.jersey.spi.container.servlet.ServletContainer.init(ServletContainer.java:470)
	at javax.servlet.GenericServlet.init(GenericServlet.java:212)
	at org.mortbay.jetty.servlet.ServletHolder.initServlet(ServletHolder.java:440)
	at org.mortbay.jetty.servlet.ServletHolder.doStart(ServletHolder.java:263)
	at org.mortbay.component.AbstractLifeCycle.start(AbstractLifeCycle.java:50)
	at org.mortbay.jetty.servlet.ServletHandler.initialize(ServletHandler.java:685)
	at org.mortbay.jetty.servlet.Context.startContext(Context.java:140)
	at org.mortbay.jetty.webapp.WebAppContext.startContext(WebAppContext.java:1250)
	at org.mortbay.jetty.handler.ContextHandler.doStart(ContextHandler.java:517)
	at org.mortbay.jetty.webapp.WebAppContext.doStart(WebAppContext.java:467)
	at org.mortbay.component.AbstractLifeCycle.start(AbstractLifeCycle.java:50)
	at com.google.tracing.TraceContext$TraceContextRunnable.runInContext(TraceContext.java:452)
	at com.google.tracing.TraceContext$TraceContextRunnable$1.run(TraceContext.java:458)
	at com.google.tracing.TraceContext.runInContext(TraceContext.java:698)
	at com.google.tracing.TraceContext$AbstractTraceContextCallback.runInInheritedContextNoUnref(TraceContext.java:336)
	at com.google.tracing.TraceContext$AbstractTraceContextCallback.runInInheritedContext(TraceContext.java:328)
	at com.google.tracing.TraceContext$TraceContextRunnable.run(TraceContext.java:456)
	at java.lang.Thread.run(Thread.java:679)

This exception is caused by compatibility issues between asm-4.0.jar and asm-3.1.jar. With the new Version of AppEngine, asm-4.0.jar is used and it is not compatible with Jersey, which relies on asm-3.1.jar. To make Jersey still work on GAE 1.7, you have to remove the dependency on asm-4.0.jar.

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To remove the dependency, simply right-click on the referenced library "asm-4.0.jar", select "Build Path" and click on "Remove from Build Path". You also have to remove the file physically.

However, now that you changed that, you will still run into other problems. Datanucleus 2.0 relies on asm-4.0.jar and now that we removed the dependency, we can't use it any more. Therefore, it is necessary to switch to Version 1.0. You can do this simply by right-clicking on the project - select "Google" - "App Engine Settings". In this dialog, simply switch to Version 1.0 and you are ready to go (again)

Set Datanucelus Version to 1.0 in Eclipse for AppEngine