Do different search engines treat keyword densities differently ? What is keyword density tolerance of those search engine?
The search engines algorithms change periodically, but generally speaking they do differ in the keyword densities they gauge to trigger off thier spam filters. Most people say to stay within about 10-15% keyword density. Otherwise if your copy simply doesnt read well, ie: you have stuff too many keywords in there - then you've probably gone over. Remember that you must not only satify the engines but also your customer or you'll get them to your page but they won't convert.
This is covered in more depth in the SEO Made Easy book in my signature.
SEO Cat thanks for your reply, few expert says Yahoo and MSN Search have much higher keyword density tolerance as compared with google but I am not sure.
Yes this is true which is why they say some SEO practices will only work on specific SE's. A take the view that building a quality site with good content, and relevant links will serve you better in the long term.