I have set up a VPN tunnel on Sonicwall 2040 with the required parameters. Even though I am able to ping to the remote Gateway IP, the tunnel is showing DOWN and cannot ping to the remote server. Please help me out.
You don't really give enough information to allow a thorough diagnosis, so the best I can do is provide some general guidelines.
Since you have already verified that you can reach the remote gateway, the problem is almost certainly in your configuration. IPSec is very sensitive to any mismatches in the configurations between the two VPN servers. Make sure that private network ranges are specified identically in both configurations, or you won't be able to establish an SA. Another common problem, when using shared-secret authentication, is a mismatch of the keys in the two configurations. These keys are often random characters and are very easy to mistype. Finally, check your logs for any indications of trouble.
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