Static Template blog not working

Here is the setup:

http://www.domainname.com = static homepage = template: home-page
http://www.domainname.com/blog = blog = template: blog-page

Reading settings:
“A static page”
Front Page = home
Blog Page = blog

My home page shows up fine. Blog page doesn’t display posts.
Blog page does display the comment box. Permalink is “Blog” with a link to “www.domainname.com/blog”.

When I add a “query-post” before the loop. It displays the number of posts. But then all the post displaying on the blog-page can’t be viewed alone.

Here is another think I did to troubleshoot:

I changed the blog.php to index.php and uploaded it to a fresh install and all the posts showed up just fine.

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Here are the files I have:
– blog.php (template)
– header.php
– sidebar.php
– home.php (template)
– index.php (blank)