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Recovering a root file system error in Amazon EC2 Ubuntu instance

First, do not play around with your home directory permissions

Recently, I was playing around with my Ubuntu free tier t2.micro instance and used a sudo command to change the access rights of the /home/ubuntu directory to 777. I promptly logged out of my putty session without realizing that EC2 does not take this easy. Result: My next putty login failed ( with an error like "server returned public key") and ftp stopped working as well.