Documentation for JIRA 4.2. Documentation for other versions of JIRA is available too. 

2007-09-26 08:14:31,033 INFO  [STDOUT] 08:14:31,030 ERROR
[SimpleWorkflowManager] An exception occurred
org.ofbiz.core.entity.GenericTransactionException: Error occurred
while starting transaction. (Cannot change transaction isolation level in the middle of a transaction.)
       at org.ofbiz.core.entity.TransactionUtil.beginLocalTransaction(TransactionUtil.java:276)
       at com.atlassian.core.ofbiz.util.CoreTransactionUtil.begin(CoreTransactionUtil.java:31)
       at com.atlassian.jira.workflow.SimpleWorkflowManager.doWorkflowAction(SimpleWorkflowManager.java:251)
       at com.atlassian.jira.workflow.WorkflowTransitionUtilImpl.progress(WorkflowTransitionUtilImpl.java:264)
       at com.atlassian.jira.web.action.workflow.SimpleWorkflowAction.doExecute(SimpleWorkflowAction.java:34)
       at webwork.action.ActionSupport.execute(ActionSupport.java:153)
       ...
caused by: org.postgresql.util.PSQLException: Cannot change transaction isolation level in the middle of a transaction.
       at org.postgresql.jdbc2.AbstractJdbc2Connection.setTransactionIsolation(AbstractJdbc2Connection.java:765)
       at org.jboss.resource.adapter.jdbc.BaseWrapperManagedConnection.setJdbcTransactionIsolation(BaseWrapperManagedConnection.java:534)
       at org.jboss.resource.adapter.jdbc.WrappedConnection.setTransactionIsolation(WrappedConnection.java:390)
       at org.ofbiz.core.entity.TransactionUtil.beginLocalTransaction(TransactionUtil.java:262)
       at com.atlassian.core.ofbiz.util.CoreTransactionUtil.begin(CoreTransactionUtil.java:31)

After much pain it appears that the datasource configuration had the following:

<new-connection-sql>select 1</new-connection-sql>
<check-valid-connection-sql>select 1</check-valid-connection-sql>

Which for some reason seems to be being run within the same transaction as the client code - "fixing" the isolation level.

I tried to raise a bug at jira.jboss.org or comment on this one (that was the only one I could find that seemed to be similar) but after a long and drawn out fight with the jboss.com registration system was unable to log in to it.

Status: has not been reproduced and tested internally but has fixed problem for two customers.
Noticed with:
JIRA 3.8.1 Enterprise: compiled as an ear with plugins for SVN and SVN-commit
JBoss 4.0.5 GA installed with JEMS for EJB3
PostgreSQL 8.1.8
References: this forum post - this JBoss bug
Support Ref: JSP-14364

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