Putty: Getting Server refused our key Error

Adding a few thoughts as other answers helped, but were not exact fit.

First of all, as mentioned in accepted answer, edit

/etc/ssh/sshd_config

and set log level:

LogLevel DEBUG3

Then restart sshd on the server to have it use the changed log level, e.g.:

sudo service ssh restart

Then try to authenticate, and when it fails, look for log file:

/var/log/secure

It will have errors you are looking for.

OK, there was a small typo in my key. Apparently when pasting to file the first letter was cut off and it started with sh-rsa instead of ssh-rsa.

nrathathaus - your answer was very helpful, thanks a lot, this answer is credited to you :) I did like you said and set this in sshd_conf:

LogLevel DEBUG3

By looking at the logs I realized that sshd reads the key correctly but rejects it because of the incorrect identifier.