Execute following commands in order to install ruby and rails.

sudo apt-get install build-essential

Below command will install all necessary packages.
if you dont want any remove it from command.

sudo apt-get install ruby ri rdoc mysql-server libmysql-ruby ruby1.8-dev irb1.8 libdbd-mysql-perl libdbi-perl libmysql-ruby1.8 libmysqlclient15off libnet-daemon-perl libplrpc-perl libreadline-ruby1.8 libruby1.8 mysql-client-5.0 mysql-common mysql-server-5.0 rdoc1.8 ri1.8 ruby1.8 irb libopenssl-ruby libopenssl-ruby1.8 libterm-readkey-perl psmisc

Gem Installation
Please find latest stable gem version on rubyforge.

wget http://rubyforge.org/frs/download.php/45905/rubygems-1.3.1.tgz
tar xvzf rubygems-1.3.1.tgz
cd rubygems-1.3.1
sudo ruby setup.rb

And last to install rails without documentation

sudo gem install rails --no-rdoc --no-ri

and finally rails server, you can install apache mongrel, nginx + thin, whichever you feel suitable.

for mongrel install

sudu gem install mongrel