Nadim,
On your target box try adding the fully qualified domainname of the source box in the .rhosts file i.e.:
on the target box type:
nslookup <source_box_name>
Then add this entry into the .rhosts file, it should be something like:
hostname.ukit.tandb.co.uk
Are you sure that the correct IP and hostname of the source box has been added to /etc/hosts on the target box, looking at your files it should work as local is used in name resolution before DNS??
Cheers
PSD
HACMP Specialist