Hello I have solved my problem, and I am passing some experience to the group.
I have had trouble resetting the system through the Watchdog timer. My system was at91rm9200EK type board. The problem was caused by linux leaving the flash memory in an "unknown" and not ready state. Once the watchdog reset would occur, the system would not recover and hang. Because my parallel flash chip was different from the DK board flash chip, linux MTD support would cause the flash to go and not quit some operation. Also DK boards came with an outside reset pin, and the EK boards come with an outside pushbutton reset; watchdog would not be able to reset all the hardware on the ek board, it would only reset the processor (I think).
My solution was to disable the MTD Flash driver. Since I did not use the parallel flash from Linux, it was ok for me to do so. I have not made a new flash driver for linux. This change solved the problem.
Flash that DK and EK boards use are mature and will likely be replaced by new product. I noticed that newer Atmel flash comes with two to three cycle commands, instead of upto 5 cycle commands. We used newer flash, and that is why the Linux MTD support was working improperly.
Thanks for looking, Roman