I am trying enable rsh on both client and server by adding all the required files.
When I try to do rsh from client to server:
[root@RSH_NE_2 ~]# rsh 127.1.2.26 -l root pwd
getnameinfo: Temporary failure in name resolution

I do get same error when I try rsh from server to client.

I have added both client and server IPs(127.1.1.26 and 127.1.2.26) to /root/.rhosts

If I add following two lines to /etc/hosts in both client and server, rsh starts working. Can anyone tell me whats going wrong in my setup?
127.1.1.26 Test1
127.1.2.26 Test2

it is there: failure in name resolution
rsh tries to check hostnames and nothing found...

This should happen only when hostname is used to rsh instead of IP.
In my case, I am using IP to rsh.
Any thoughts?

In that case this did not happen at all. Or how should I understand your statement?

I mean to say, I used IP address to rsh like below:
[root@RSH_NE_2 ~]# rsh 127.1.2.26 -l root pwd
getnameinfo: Temporary failure in name resolution

I don't know/have never used rsh but I was curious so I searched for "rsh getnameinfo error" and read these things:
1. You might want to consider using ssh. rsh is an obsolete and insecure protocol
2. You have your command argument order wrong. It thinks you're connecting to a server name root and it can't resolve the name.
[from man rsh:
and
3. rsh needs reverse DNS working for both machines.
these all from an old thread on another forum...]

I doubt that 3. is correct..., and I also question 1... but 2. certainly seems to apply. Looks like your command should be
As pan64 pointed out, the problem was reported to you very clearly by rsh.