If you can't get the action (which I assume from your description is too high) down to a usable height, you may need to shim the neck in the pocket--basically put a spacer between the body and the neck right down at the heel, to angle the neck back from the body. Here are a couple of references to check out:

http://www.articlekarma.com/Article/...Neck-Shim/8660

http://www.projectguitar.com/tut/nckshim.htm

This assumes that other factors that affect action are OK: the neck itself is straight (or very slightly concave), the nut and bridge heights are proper, etc. Have you checked the neck straightness with a good straight-edge?