Thanks for your answer. It really helped me move further.

I am stuck with an issue and would like some assistance.

My Webservice code is

    public static void setupSecurity(Object service) {

        org.apache.cxf.endpoint.Client client = org.apache.cxf.frontend.ClientProxy.getClient(service);

        org.apache.cxf.endpoint.Endpoint cxfEndpoint = client.getEndpoint();

        Map<String, Object> outProps= new HashMap<String, Object>();

        outProps.put(WSHandlerConstants.ACTION,

                WSHandlerConstants.USERNAME_TOKEN + ' ' + WSHandlerConstants.TIMESTAMP);

        outProps.put(WSHandlerConstants.PASSWORD_TYPE, WSConstants.PW_TEXT);

        outProps.put(WSHandlerConstants.PW_CALLBACK_CLASS, ClientPasswordHandler.class.getName());

        outProps.put(WSHandlerConstants.USER, "Admin");

        PhaseInterceptor<SoapMessage> wssOut = new WSS4JOutInterceptor(outProps);

        cxfEndpoint.getOutInterceptors().add(wssOut);

        cxfEndpoint.getOutInterceptors().add(new SAAJOutInterceptor());

    }

As PasswordType also has to be sent as part of SOAP header i updated the WSDL.

Below is partial WSDL

 <xsd:schema elementFormDefault="qualified" targetNamespace="http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd" >
     <xsd:element name="Security" type="s3:SecurityHeaderType"/>
       <xsd:complexType name="SecurityHeaderType">
        <xsd:sequence>
          <xsd:element minOccurs="1" maxOccurs="1" name="UsernameToken" type="s3:UsernameToken"/>
          <xsd:element minOccurs="1" maxOccurs="1" name="TimeStamp" type="s3:TimeStamp"/>
        </xsd:sequence>
      </xsd:complexType>
      <xsd:complexType name="UsernameToken">
        <xsd:sequence>
          <xsd:element minOccurs="0" maxOccurs="1" name="Username" type="xsd:string"/>
          <xsd:element  minOccurs="1" maxOccurs="1" name="Password">
           <xsd:complexType>
             <xsd:simpleContent>
                 <xsd:extension base="xsd:string">
                       <xsd:attribute name="Type" type="xsd:string"/>
                     </xsd:extension>
              </xsd:simpleContent>
          </xsd:complexType>
           </xsd:element>          
         </xsd:sequence>
      </xsd:complexType>
     
      <xsd:complexType name="TimeStamp">
        <xsd:sequence>
          <xsd:element minOccurs="0" maxOccurs="1" name="Created" type="xsd:dateTime"/>
          <xsd:element minOccurs="0" maxOccurs="1" name="Expires" type="xsd:dateTime"/>
        </xsd:sequence>
      </xsd:complexType>

    </xsd:schema>

I added attribute Type for the Password element in WSDL. The Webservice is using PasswordText as the type.

Below is the generated code of the security class

public class OasisSecurity {
    public class Password_element {
        public String Type_x;
        private String[] Type_x_att_info = new String[]{'Type'};
        private String[] apex_schema_type_info = new String[]{'http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd','true','false'};
        private String[] field_order_type_info = new String[]{};
    }
    public class TimeStamp {
        public DateTime Created;
        public DateTime Expires;
        private String[] Created_type_info = new String[]{'Created','http://www.w3.org/2001/XMLSchema','dateTime','0','1','false'};
        private String[] Expires_type_info = new String[]{'Expires','http://www.w3.org/2001/XMLSchema','dateTime','0','1','false'};
        private String[] apex_schema_type_info = new String[]{'http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd','true','false'};
        private String[] field_order_type_info = new String[]{'Created','Expires'};
    }
    public class UsernameToken {
        public String Username;
        public OasisSecurity.Password_element Password;
        private String[] Username_type_info = new String[]{'Username','http://www.w3.org/2001/XMLSchema','string','0','1','false'};
        private String[] Password_type_info = new String[]{'Password','http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd','Password_element','1','1','false'};
        private String[] apex_schema_type_info = new String[]{'http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd','true','false'};
        private String[] field_order_type_info = new String[]{'Username','Password'};
    }
    public class SecurityHeaderType {
        public OasisSecurity.UsernameToken UsernameToken;
        public OasisSecurity.TimeStamp TimeStamp;
        private String[] UsernameToken_type_info = new String[]{'UsernameToken','http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd','UsernameToken','1','1','false'};
        private String[] TimeStamp_type_info = new String[]{'TimeStamp','http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd','TimeStamp','1','1','false'};
        private String[] apex_schema_type_info = new String[]{'http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd','true','false'};
        private String[] field_order_type_info = new String[]{'UsernameToken','TimeStamp'};
    }
}

The problem i am facing is, i am able to assign value to the Type_x of the Password_element class.

But i am unable to set the value to the Password .

This is how the header part of my request looks like

<?xml version="1.0" encoding="UTF-8"?><env:Envelope xmlns:env="http://schemas.xmlsoap.org/soap/envelope/" xmlns:xsd="http://www.w3.org/2001/XMLSchema" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"><env:Header><Security xmlns="http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-wssecurity-secext-1.0.xsd" ><UsernameToken><Username>Admin</Username><PasswordType="http://docs.oasis-open.org/wss/2004/01/oasis-200401-wss-username-token-profile-1.0#PasswordText" /></UsernameToken><TimeStamp><Created>2010-07-28T17:42:25.966Z</Created><Expires>2010-11-25T17:42:25.966Z</Expires></TimeStamp></Security></env:Header>

 And it can be seen in header that i am just able to pass the attribute Type of Password tag and unable to set Value for Password.

I am getting the below error message after the webservice callout.

System.CalloutException: Web service callout failed: WebService returned a SOAP Fault: Fault occurred while processing. faultcode=ns1:client faultactor=

Any help on this will be highly appreciated.