how to set transaction isolation level

[kush kumar donepdui]

Hi,
I am using innodb transaction tabled, I never had problem till today, mysql suddenly started throw exceptions
1. lock wait timeout--- blah blah
2. connection refused --- blah blah

I have a feeling that some how innodb is locking tables instead of rows, I would really appreciate if some cna tell me
1, how to set transaction isolation level to READ-COMMITED
2.how to make sure that innodb locks only rows not tables

Here is my my.cnf file
[mysqld]
datadir=/var/lib/mysql
socket=/var/lib/mysql/mysql.sock
set-variable=max_connections=10000
set-variable=max_user_connections=10000
set-variable=key_buffer_size=64M
set-variable=table_cache=256
set-variable=sort_buffer_size=4M
set-variable=sort_buffer_size=1M
set-variable=transaction-isolation={READ-UNCOMMITTED | READ-COMMITTED | REPEATABLE_READ | SERIALIZABLE}
set-variable=innodb_table_locks=0

[mysql.server]
user=mysql
basedir=/var/lib

[safe_mysqld]
err-log=/var/log/mysqld.log
pid-file=/var/run/mysqld/mysqld.pid

Any help will be greatly appreciated.

Cheers
kush