I can add users using the following commands without specifying a group
# useradd USER1
# passwd USER1
password: ******
Retype password:
password: ******

but if I use the following script with a text file (user_list.txt) containing list of user, i.e. one user per line and user name and password separated by a space, will that work? Am I missing something in the script?

=======================
#!/bin/bash
NEW_USERS="/tmp/scripts/user_list.txt"
HOME_BASE="/home/"

cat ${NEW_USERS} | \
while read USER PASSWORD
do
useradd -p ${PASSWORD} -m -d ${HOME_BASE}${USER} ${USER}
done
=======================

user_list.txt content:
=======================
USER1 USER1_PASSWORD
USER2 USER2_PASSWORD
USER3 USER3_PASSWORD
...
USER9 USER9_PASSWORD
=======================

For the same users I have to set the vnc password for each user manually using the following commands.
# su - USER1
$ vncpasswd
password: ******
Retype password: ******
$ exit

How can I write a script to read the same text file and set vnc passwords?
BTW I am using Red Hat Linux 5.

If you have many users, etc. to maintain, and especially if you have many systems upon which to maintain them, it quickly becomes advantageous to use a central authority, such as LDAP (a.k.a. Microsoft OpenDirectory) to do the job. Instead of attempting to update cumbersome per-system password files, have each machine consult the central authority to validate passwords.

If you have a mixture of Microsoft, OS/X, and Linux systems, the good news is that all of these can simultaneously use the same authority, allowing "single sign-on" if you so desire.

I managed to get the user add script work, but how to write the following commands in a script for setting vnc password for multiple users? I need to read a text file (user_list.txt) containing list of user, i.e. one user per line and user name and password separated by a space.

# su - USER1
$ vncpasswd
password: ******
Retype password: ******
$ exit

user_list.txt content:
=======================
USER1 USER1_PASSWORD
USER2 USER2_PASSWORD
USER3 USER3_PASSWORD
...
USER9 USER9_PASSWORD
=======================

If you cannot find some 'add_many_users' commands, you have to do it with expect. It won't be very easy though. Google might help.