Cannot create a trust between two windows 2003 Forest

there are some pre-req's you need to ensure before creating trusts:

Any forest involved in the trust must be running at Windows Server 2003 forest functional level
Setting a forest to Windows Server 2003 forest functional level requires every domain controller within the forest to be running Windows Server 2003.

To create an inter-forest trust, you must be a member of the Enterprise Admins group.

Windows Server 2003 can create an inter-forest trust only from the root domain, because inter-forest trusts are transitive at the domain level. This means that if you were to establish a trust between Forest A and Forest B, then every domain in Forest A will trust every domain in Forest B, and vice versa. Forest trusts are not transitive at the forest level, though.

Hope this helps!

If not, I'll see if I can remember anything else :-)

I created the entry in hosts file on both side of forest and win2k3 is rasied as forest function level, and it does not fix the issue.

can your two domain controllers communicate (ping, traceroute, etc) utilizing the name and not IP?

Sounds like NetBIOS name resolution is missing.
Either use the same WINS database in both forests (using the same WINS servers for all servers/WS or let WINS servers replicate to each others) or, if you don't want that, create the following entries in %SystemRoot%\System32\Drivers\Etc\LMHOSTS (not HOSTS) files:

on Server1 and all DCs in DOMAIN1:
10.10.10.20      SERVER2      #PRE      #DOM:DOMAIN2
10.10.10.20      "DOMAIN2        \0x1b"      #PRE

on Server2:
10.10.10.10      SERVER1      #PRE      #DOM:DOMAIN1
10.10.10.10      "DOMAIN1        \0x1b"      #PRE

(seperate IP, Name etc. by TABs, but string "DOMAINx        \0x1b" must be filled up with SPACES to be 15 characters before "\0x1b")

Ensure you have ticked "use LMHOSTS lookup" in TCP/IP settings.
This assures Server1 sees Server2 (and vice versa) via NetBIOS name resolution and identify it as DC for the trusted domain when verifying the trust.

Thanks for all the comments.

What I did to make it works as below,

Create a "Stub" DNS Zone DOMAIN2.com in SEVER1/DOMAIN1 and add an entty of SERVER2 in the Stub Zone.

Create a "Stub" DNS Zone DOMAIN1.com in SEVER2/DOMAIN2 and add an entty of SERVER1 in the Stub Zone.

and I am able to create the forest trust.

I would give the point to The_Computer_Guru_777 , since his solution close to the related DNS solution.

Thanks,