[raghusesha (OP)]

    Rainbow forms when there is sun shining on one side with dark clouds on the other side (a dark background for the rainbow to be visible).  Some water droplets in between the sunny side and the shady side will refract the sun light and cause the rainbow to appear on the dark background.

    Now,  does it have to rain for rainbow to form?  The water droplet that causes the rainbow is certainly not part of the rain because then, rainbow won't last for long.  So, the lucky water droplet causing the rainbow is in the condensed form in the cloud. 
    1) Does it mean that rainbow is formed only by condensed water (or ice?) and not normal liquid water?
    2) There are probably millions and millions of condensed water droplets.  Why do we see only one (or two) rainbows?

[RD]

There are probably millions and millions of condensed water droplets.  Why do we see only one (or two) rainbows?

Has to be rain sized drops for a rainbow to form*,
when the drops are much smaller, similar size to the wavelength of light, the reflection is white/grey, as in white/grey clouds.

http://en.wikipedia.org/wiki/Mie_theory

[* and the elevation of the sun has to be less than 42^o]

[tommya300]

There are probably millions and millions of condensed water droplets.  Why do we see only one (or two) rainbows?

Has to be rain sized drops for a rainbow to form*,
when the drops are much smaller, similar size to the wavelength of light, the reflection is white/grey, as in white/grey clouds.

http://en.wikipedia.org/wiki/Mie_theory

[* and the elevation of the sun has to be less than 42^o]

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http://astroblogger.blogspot.com/2009/10/ring-around-moon.html
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http://www.allthesky.com/atmosphere/moonaureole.html

[RD]

Neither of the above are rainbows, the upper is a halo (caused by ice crystals), the multicoloured lower one is a corona.

[rosy]

Have a look at Dave's explanation of how rainbows form here:
http://www.thenakedscientists.com/HTML/content/kitchenscience/exp/diy-rainbow/

... that should clear up your confusion about how rainbows form, at which point I think your questions will answer themselves.

[tommya300]

Neither of the above are rainbows, the upper is a halo (caused by ice crystals), the multicoloured lower one is a corona.

Yes the source is a "corona" I was just equating a Rainbow like phenomina  of sun's light reflection, moisture or ice crystalization in the atmosphere. The prisim affect presenting parts of the color spectrum. Dave's post tells it all.

http://en.wikipedia.org/wiki/Rainbow

[RD]

Yes the source is a "corona" I was just equating a Rainbow like phenomina  of sun's light reflection, moisture or ice crystalization in the atmosphere. The prisim affect presenting parts of the color spectrum. Dave's post tells it all.

http://en.wikipedia.org/wiki/Rainbow

That type of corona is formed by diffraction/interference, rainbows are formed by refraction/dispersion:
The mechanisms which produce the colours in coronae and ranbows/prisms are not equivalent.

[tommya300]

Yes the source is a "corona" I was just equating a Rainbow like phenomina  of sun's light reflection, moisture or ice crystalization in the atmosphere. The prisim affect presenting parts of the color spectrum. Dave's post tells it all.

http://en.wikipedia.org/wiki/Rainbow

That type of corona is formed by diffraction/interference, rainbows are formed by refraction/dispersion:
The mechanisms which produce the colours in corona and ranbows/prisms are not equivalent.

I see, these separate processes do derive the same final results, "different images of colors."
 Would that be considered a simularity?
.

[RD]

The mechanisms producing the colours, interference and dispersion, are completely different,
 I'd be stripped of one of my gold stars if I hadn't pointed that out  [] 

[tommya300]

The mechanisms producing the colours, interference and dispersion, are completely different,
 I'd be stripped of one of my gold stars if I hadn't pointed that out  [] 

Yep ok I see, the point taken

[RD]

since this thread lacks a picture of a rainbow...

 [ Invalid Attachment ]
http://www.atoptics.co.uk/fz303.htm

(o.k. it's a garden-hose-bow)