how to set log4j.configuration system variable in WebSphere 7?

The log4j.configuration property is a Java Virtual Machine system property. You can load this property by adding it to the end of your application server's list of generic JVM arguments. This is done in the WebSphere Console by navigating through the following:

Servers > Application servers > [app server name] > Process definition > Java Virtual Machine

Under Generic JVM arguments, add the following:

-Dlog4j.configuration=file:C:/log4j.properties

Click Apply at the bottom of this page, and save your changes. This will require a restart of the application server to take effect.