I have installed Wordpress inside Cakephp\'s /app/webroot/blog/ folder and changed the wordpress permalink settings to Month and name (eg. http://abc.com/
When we change the permalink settings of Wordpress, it generates a .htaccess file, if there is required permission else we have to create it.
In the above case there was no .htaccess file inside /blog/ folder. I created it with the following mod_rewrite rules as provided by Wordpress while changing permalink settings.
RewriteEngine On
RewriteBase /blog/
RewriteRule ^index\.php$ - [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /blog/index.php [L]
After this every thing works fine.