Each paginated page shows the same posts

Each of my paginated pages show the same most recent posts as on the homepage, I can’t see my older entries. I did just update wordpress but I’m not sure if that’s why.. here’s my theme file:

<?php
/**
 * @package WordPress
 * @subpackage WP_Theme
 */

get_header(); ?>
<div class="post">

	<?php
	rewind_posts();
	query_posts(
	array (
		'cat' => 1,
		//'posts_per_page' => 3,
		)
	); // blog
	?>
		<h1>Blog</h1>
		<div class="entry">
	<?php if (have_posts()) : ?>

		<?php while (have_posts()) : the_post(); ?><div class="inner-entry">
	<h2><a href="<?php the_permalink() ?>" rel="bookmark" title="Permanent Link to <?php the_title_attribute(); ?>"><?php the_title(); ?></a></h2>
	<small><?php the_time('F jS, Y') ?></small>
		<?php the_content('...>'); ?>
		</div>
		<?php endwhile; ?>
		<div class="navigation">
			<div class="alignleft"><?php next_posts_link('&laquo; Older Entries') ?></div>
			<div class="alignright"><?php previous_posts_link('Newer Entries &raquo;') ?></div></div>
	<?php else : ?>
		<h2>Not Found</h2>
		<div class="inner-entry">
			<p>Sorry, but you are looking for something that isn't here.</p>
		</div>
	<?php endif; ?>
</div></div>
<?php get_sidebar(); ?>
<?php get_footer(); ?>