At the end of your httpd.conf is a section like this:
Options +Includes +FollowSymlinks -Indexes
AllowOverride Indexes AuthConfig Limit FileInfo
Allow from all
<Files ~ "^\.ht">
Deny from all
There you must chnage the AllowOverride statement to allow all settings in the drupal .htaccess file. For test purposes you might even change it to: AllowOverride All
Then restart your apache webserver.