<p>I am trying to implement AJAX in my Google App Engine application, and so I am looking for a good AJAX framework that will help me. Anyone has any idea?</p>

<p>I am thinking about Google Web Toolkit, how good it is in terms of creating AJAX for Google App Engine?</p>

As Google Web Toolkit is a
subset of Java
it works best when you Java at the backend too.  Since Google App Engine is currently
Python only
I think you'd have to do a lot of messing about to get your server and client to talk nicely to each other.
jQuery seems to be the most popular JavaScript library option in the
AJAX Tag at DjangoSnippets.com
.
Edit:
The above is only true of Google App Engine applications written in Python.  As Google App Engine now supports Java, GWT could now be a good choice for writing an AJAX front end.
Google even have a tutorial showing you how to do it.