> What is the output from --debug-buildig immediately prior to the error message?
>It should say what target/project is built -- could you post the Jamfile
>for that project?

Please note that I sent another email regarding this issue:
But to continue on this thread.

Here is a very much simplified project, that show the same issue.
Here is the output from : bjam --debug-building            
--------------------------------------------------------------------------------------------------
building project Jamfile</var/tmp/ma0/clientRoot/workspace/MyProject/SCRATCH>  ('object(project-target)@82') with

     Building target './test'
         Build request:  object(property-set)@9
         Command line free features:
         Target requirements:  <include>../SCRATCH/src <include>/var/tmp/ma0/boost/boost_1_42_0 <variant>debug:<define>DEBUG

         Common properties:  <asynch-exceptions>off <debug-symbols>on <define>DEBUG <exception-handling>on <extern-c-nothrow>off <hardcode-dll-paths>true <host-os>linux <include>../SCRATCH/src <include>/var/tmp/ma0/boost/boost_1_42_0 <inlining>off <install-dependencies>off <link>shared <optimization>off <os>LINUX <pch>on <preserve-test-targets>on <profiling>off <rtti>on <runtime-debugging>on <runtime-link>shared <stdlib>native <suppress-import-lib>false <symlink-location>project-relative <target-os>linux <threading>single <toolset-gcc:version>4.2.1 <toolset>gcc <user-interface>console <variant>debug <warnings-as-errors>off <warnings>on

         Building target '/boost_system'
             Build request:  object(property-set)@96 <asynch-exceptions>off <debug-symbols>on <exception-handling>on <extern-c-nothrow>off <inlining>off <link>shared <optimization>off <os>LINUX <pch>on <preserve-test-targets>on <profiling>off <rtti>on <runtime-debugging>on <runtime-link>shared <stdlib>native <target-os>linux <threading>single <toolset-gcc:version>4.2.1 <toolset>gcc <variant>debug <warnings-as-errors>off <warnings>on
             Command line free features:
             Target requirements:  <file>/var/tmp/ma0/boost/boost_1_42_0/stage/lib/libboost_system.a <include>/var/tmp/ma0/boost/boost_1_42_0

             Common properties:  <asynch-exceptions>off <debug-symbols>on <exception-handling>on <extern-c-nothrow>off <file>/var/tmp/ma0/boost/boost_1_42_0/stage/lib/libboost_system.a <hardcode-dll-paths>true <host-os>linux <include>/var/tmp/ma0/boost/boost_1_42_0 <inlining>off <install-dependencies>off <link>shared <optimization>off <os>LINUX <pch>on <preserve-test-targets>on <profiling>off <rtti>on <runtime-debugging>on <runtime-link>shared <stdlib>native <suppress-import-lib>false <symlink-location>project-relative <target-os>linux <threading>single <toolset-gcc:version>4.2.1 <toolset>gcc <user-interface>console <variant>debug <warnings-as-errors>off <warnings>on
error: Unable to find file or target named
error:     '/var/tmp/ma0/boost/boost_1_42_0/stage/lib/libboost_system.a'
error: referred from project at
error:     ''

------------------------------------------------------------------------
here is the leaf project:

exe test : [ glob src/*.cpp  ]
           /site-config//boost_system
           /site-config//boost_serialization
         : <include>../SCRATCH/src
           <variant>debug:<define>DEBUG

--------------------------------------------------------------------------------------------
Here is the site-config.jam

----------------------------------------------------------------------------------
import os ;
local BOOST_ROOT = [ os.environ BOOST_ROOT ] ;
project site-config
    : requirements <include>$(BOOST_ROOT) 
    ;
lib boost_system : :   <file>$(BOOST_ROOT)/stage/lib/libboost_system.a  ;
lib boost_serialization : :  <file>$(BOOST_ROOT)/stage/lib/libboost_serialization.a  ;
using gcc ;
using testing ;
---------------------------------------------------------------------------

Let me know if you require any further info.

  Best regards,
Ta,
   Avi