I had this problem a while back, and it seemed to get fixed with a WordPress version update. Now the problem has returned, apparently after upgrading to 3.5.1. When uploading an image to the Media Library, the process "hangs" and I eventually see an "HTTP Error".
It seems the image gets uploaded fine, as I can see it in the wp-content/uploads directory structure. But none of the thumbnail files appear. As an example, when I upload an image called "Red.jpg", the image itself appears in wp-content/uploads/2013/03. But thumbnail files that are usually generated (e.g. "Red-300x200.jpg") do not. And, as I mentioned, the progress bar in the media uploader page "hangs" for a while and eventually displays an "HTTP Error" message.
Another side effect can be seen in the database. If I look in the "wp_postmeta" table, I can see an indication of this problem, although I do not fully understand the significance. For most images, if I look in the "wp_postmeta" table, I will see and entry for "_wp_attached_file" and "_wp_attachment_metadata". For this new image having the error, though, I only see "wp_postmeta". There is no entry for "_wp_attachment_metadata".
Anyone have any clue what may be going on here? I did all the standard troubleshooting things to no avail (disable plugins and themes). Completely stuck.