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The problem may be that you do not have a JVM set up in your machine path or you do not have a JVM installed on your machine. As of SilkTest 6.5, a JVM is no longer installed as a part of SilkTest.
The solution is to install a JVM from http://java.sun.com/downloads/.
Alternately, check that a valid JVM directory is listed in your PATH Environment Variable. To check your PATH variable:
On Windows2000 or XP, click the Advanced tab, then click Environment Variables.
On Windows NT, click the Environment tab.