rebel.xml should end up in WEB-INF/classes of your application. If you have dependencies in WEB-INF/lib folder, then every archive should have its own dedicated rebel.xml configuration file.
See the doc
If you deploy using Eclipse WTP, then it is fine to put it into source folder. But if you are using Ant to build the WAR, then you have to make sure that your Ant script will detect rebel.xml and copy it to the correct location.
The paths in the rebel.xml should point to the folder where the compiled classes are, i.e. the location where your IDE compiles these classes to.