We have given VPN thru GRE. Now the client is running SAP between this link. there are no drops in the link even with 1500 byte size between two end routers however after some entries the application hangs( there is an hourglass which keeps coming) and we are stuck. I have tried everything from df bit to mtu size to tcp adjust command but nothing has worked.
the first thing to check would be why SAP hangs, i.e. which packets are not delivered (assuming there are no SAP software related issues). And then find out where they are dropped. The VPN/GRE part of your network could be the reason, but I assume there are many other active components as well. Maybe you are searching in the wrong place.
So I would get a packet analyzer (like ethereal) and get a trace of what happens.
Happy New Year!
Edit: Second thought:
What about the IP network transporting the GRE packets? Are there drops? Are you able to ping the SAP server from the client machine, when the SAP problem occurs?
I would setup a ping in the background (ping -t) and see wether you are chasing a problem related to IP connectivity or more related to SAP.
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