granny,
Short answer is just to use the 'passwd' command. It's the standard way of setting the password. It usually uses PAM (Password Authentication Modules) for this.
The useradd and usermod programs expect a previously encrypted password. Not the plain text, as they write it directly to /etc/shadow. You're seeing the password in /etc/shadow, right? (If not, I haven't understood your message :<( ) It could be different in RH 7.3, but I doubt it. Read the man page 'man useradd' to see what it says for the "-p" option.
I'll try to walk you through what I think is happening. ($ is the command line, # is a comment.)
Code:
# Add the user
$ useradd -p test1 test1
# This is the command you are using, right?
# Print out the line in shadow
$ grep test1 /etc/shadow
test1:test1:12293:0:99999:7:::
# Notice the plaintext password of test1, and this shouldn't work.
# Now, we will generate a "crypted" password.
# A crypted password is 13 characters, the first two are the "salt"
# debian has a command called "mkpasswd" that does this.
# Another way is to use the openssl command which should be available
$ openssl passwd test1
NYetuFTIgHVpo
# Now put the password into /etc/shadow
$usermod -p NYetuFTIgHVpo test1
# What does it look like now?
$ grep test1 /etc/shadow
test1:NYetuFTIgHVpo:12293:0:99999:7:::
# This is what it should look like
Please note that putting the password on the command line is BAD ('openssl passwd test1' and even 'usermod -p NYetuFTIgHVpo test1'.) Bad, because bash will save the command to ~/.bash_history. Even worse, is that any user could be running ps and see the command, with the users password. If you don't put the password on the command line 'openssl passwd' will ask much like the standard 'passwd'. I used it for clarity (hopefully the meaning is clear above.)
While I'm on the subject, it is possible to use a MD5 hash instead of the DES crypt. It will look something like this in /etc/shadow "$1$oGnDy2jS$Ht4kvgGKIZhQzoCoGnKQl1". The "$1" means it is a "version 1" md5 hash, and the characters between the next two dollar signs are the salt. Left over is the hash. On older systems, it probably requires an upgrade, and is much easier if the distro does it. It requires all the programs that touch /etc/shadow to be aware. If PAM is used by everything, then that is the only thing that needs to be upgraded (or installing the proper module)
Hopefully this makes sense,
chris