The first step in cakephp installation is setting up the .htaccess file. Without proper configuration of .htaccess file we can run into 500 internal server error.
The most common fix for the .htaccess is use the RewriteBase. Add the following line to your .htaccess file in the cakephp root folder.
Some other notes I found regarding the issues causing this error are:
Incorrect file/directory permissions: 766 or 777.
The webserver does not process php/cgi scripts with higher permissions than 755. Change the permissions of your file/directory to 755 in order to solve this issue.
Incorrect Apache directives inside .htaccess file.
In case custom Apache directives have been added to the .htaccess file, the Internal Server Error means these directives are either not supported and should be removed or are incorrect and should be re-written.
Php directives set in the .htaccess file instead of the php.ini files.
All custom php settings (e.g. php_flag) must be placed inside a php.ini file. For each separate directory you should create its own php.ini file.