How to I create initrd.gz file ? I wrote a init script, how can I convert that script in to initrd.gz file ?

The initrd file is either a compressed filesystem or a compressed cpio archive. It depends on the distro. You probaly have a "mkinitrd" script that your disto used to create it. Read it's manpage.

Given an intrd.gz file, use zcat to copy it uncompressed somewhere. Then check out what file says. If it is a filesystem, file will tell you what filesystem is used. Ext2 I think. My distro creates a cpio archive. Here is how I would access the contents:
Now the contents of initrd will be extracted and I can inspect and modify files there.
Reversing the process:
If your system uses a filesystem for initrd, then uncompress the initrd-<version>.gz file; create a directory to mount it on, and mount it with the "loop" option. Now you can cd into the directory you created and make changes. When you are finished, umount the file and compress it.

see:
man mkinitrd
man initrd
/usr/src/linux/Documentation/initrd.txt

You are not understand my problem. I do not have initrd.gz. I want to create initrd.gz file. I wrote a script and i have to compress that script to make it an initrd.gz file.

The initrd ram disk should contain an entire filesystem. It needs more in it than just an init file.

Did you just compile a kernel? If so you need to run "make modules_install" and "make bzImage".

If you already have a kernel, your distro probably has a "mkinitrd" script that will create an initrd file adding needed modules. You can take that initrd file and modify it's /sbin/init script.

You may want to read the kernel source's "initrd.txt" file.

We need to know which kernel you are using and then whether certain options are compiled into the kernel. If you are using a fairly new kernel from the 2.6 series, then it can only use initrd files which are a cpio archive. If it is an older 2.6 kernel or any 2.4 kernel then it can use an initrd which is a filesystem image -usually ext2, but it can also be cramfs.
Either way, the initrd must contain a couple of things -usually the initial script (or binary) which is run is called linuxrc. If it is a script then your initrd musr contain a shell which can execute the script and the initrd must also contain whaever programs are called by the script. The initrd must also contain at least one device file (/dev/console).
As mentioned, your distro probably includes a script for creating initrd's called mkinitrd. The best way to start is to create an initrd using that script and then tear it apart to see what's in there. Then you can change the contents however you like.
What kernel version are you running?

I am running kernel version 2.6.18-1.2798.fc6

If you are using Fedora Core 6, the initrd file will be a compressed cpio archive.

There will be a nash script "init" in the root directory of initrd. There will also be a number of other files (~ 53) which may be needed as well. You might want to study this file and modify it to fit your needs.

I wrote init script for some other linux device. and I want to create initrd.gz file from my init script for that device.

i presume you have that devices initrd.gz. you can copy that initrd.gz, extract and edit.