Hi chinki,
It's not possible to use Python modules that require extension modules (C code) in App Engine. This includes the PIL library. The Image API is available, which may meet your needs:
http://code.google.com/appengine/docs/python/images/ . If not, you will need to use an external service to achieve this.
-Nick Johnson
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Nick Johnson, App Engine Developer Programs Engineer
Google Ireland Ltd. :: Registered in Dublin, Ireland, Registration Number: 368047