There are two possible causes of this problem :
1.) You haven't compiled PHP with GD support. The details are shown in the previous comments to solve this.
2.) There's one more, you even don't have GD installed. On Linux systems this could be a bit annoying, if there are no pre-compiled version among the packages,but you can manage to install it from source. As I think, source is the best way to keep everything up-to-date.
If you'd like more info, contact me via email.
Best,
OverLord