images in Docbook with Red Hat 6.2

[Peter Toft <pto@sslug.dk>]

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Using Docbook with Red Hat 6.2 I have a hard time
generating the PDF file with images (HTML is working
fine). I have xterm.gif and xterm.eps available and my
simplified source is shown below (The real source gives
350 pages of text)

db2pdf complains

-------->
! LaTeX Error: Unknown graphics extension: .eps.

See the LaTeX manual or LaTeX Companion for
explanation.
Type  H <return>  for immediate help.
 ...                                              
                                                  
l.753 {0}}

\endNode{}\endNode{}\endSeq{}\endPar{}\endNode{}\endSeq{}\endDispl...
<--------

Any clues - I am very stuck here....
I am using 
tetex-1.0.6-11
jade-1.2.1-9
jadetex-2.7-2

-----------------
My sgml-source:

<!doctype book PUBLIC "-//OASIS//DTD DocBook V3.1//EN" [
]>

<book id="index" lang="da">
  <bookinfo>
    <date>9. april 2000</date>
    <title>aargh</title>
    <AUTHORGROUP>

    <AUTHOR>
      <FIRSTNAME>Peter</FIRSTNAME>
      <SURNAME>Toft</SURNAME>
    </AUTHOR>

    </AUTHORGROUP>
    <COPYRIGHT>
      <YEAR>1998</YEAR>
      <HOLDER>Toft/HOLDER>
    </COPYRIGHT>
  </bookinfo>



<chapter id="intro">
<title>Linux?</title>

<sect1 id="OpenSource">
<title>Ã…ben kildetekst - Open Source</title>

<FIGURE ID="xterm" FLOAT="1">
<TITLE>xterm
</TITLE>
<GRAPHIC
FILEREF="xterm"  SCALE="60"></GRAPHIC>
</FIGURE>
</sect1>
</chapter>
</book>


Peter Toft, Ph.D. [pto@sslug.dk] http://www.sslug.dk/~pto

... when men were men and wrote their own device driver ...
                    --- Linus Benedict Torvalds