Image Upload Error for Theme

I am in the process of developing my first theme and everything seems fine, except I am unable to upload images to a post and even the media library seems empty, whenever I click the ‘add media’ button on the edit page.

The aforementioned image upload works fine with all the other already released themes like ‘twenty eleven’ etc, so my file permissions seem to be right. I tried everything but I am in a rut and my theme is stuck in development hell, so please help.

Thanks