What do i need to do for putting ajax functionality to my project. What tool kit do i need to download or how can i integrate that . and do i really need to do something for putting update panel for my project?
I think you need to provide a lot more information before we can give youa definitive answer.
Ajax is simply using Javascript to request a webpage - same as a user clicking on a link - except that JavaScript gets the contents of the page requested instead of showing it to the user.
This allows you to request data within JavaScript without refreshing the page.
As you mentioned UpdatePanel, I'm assuming you're using ASP.Net - In which case, .Net 2.0 didn't include AJAX and you needed to get some additional installs to make it work. 3.5 and later includes it natively.
If you're just starting to get into the whole area, I suggest you do some reading about how AJAX works behind the scenes before trying to use it - Understanding what its doing will save you a LOT of headaches later.
FWIW you don't actually need ANYTHING special to make AJAX work - you can write it yourself entirely in JavaScript (I've done this far too many times). As mentioned in Doug's answer, JQuery is fantastic and is worth using even without the AJAX functionality.
If, however, you want to use UpdatePanels and AJAX, the easiest option is .Net 3.5 or later (Visual Studio 2008 or later)
One method for AJAX enabling your ASP sites is using the AJAX control toolkit (http://www.asp.net/ajax/ajaxcontroltoolkit/samples/) which provides some AJAX functionality using ASP controls that should be familiar to a novice Dot Net developer. AJAX Control Toolkit is a DLL you add to your solution just like other controls. There is then markup for use in the ASP.NET pages.
For more customized and advanced AJAX features, your best bet is using JQuery (http://jquery.com/) and create *.asmx Web Services. JQuery includes a $.ajax() call that will communicate to ASP.NET Web Services using JSON. This SO page may help - http://stackoverflow.com/questions/879362/calling-asmx-from-jquery and this Encosia blog entry may help - http://encosia.com/2008/03/27/using-jquery-to-consume-aspnet-json-web-services/. JQuery is a library of JavaScript files that you download, include in your page, and call into using your own JavaScript files.
I would also recommend that you read the wikipedia entry for AJAX (http://en.wikipedia.org/wiki/Ajax_(programming)) and familiarize yourself with the related technologies.