Now Go to Window > Android SDK Manager. Select latest API levels and Install those packages. Will take some time to download.

Install PhoneGap

Goto nodejs webpage and install Noje Js.

Go to PhoneGap web page and download the latest version of the PhoneGap,  I will be there in the bottom of the page.

Set up your PATH environment variable

Go to  My Computer properties > Advanced tab > Environment Variables button.
> System variables  > PATH variable > Edit button.

We need to add the path to Android SDK platform-tools and tools directory. Append the following text into the text box. In my case

E:\adt-bundle-windows-x86-20130917\adt-bundle-windows-x86-20130917\sdk\platform-tools;E:\adt-bundle-windows-x86-20130917\adt-bundle-windows-x86-20130917\sdk\tools;

Save your edit.

Now we need to include %JAVA_HOME%\bin to the PATH as well. In my case it is as follows.
C:\Program Files\Java\jdk1.7.0_40\bin;%JAVA_HOME%\bin; 

Before adding JAVA_HOME you can check whether it is there already. GoTo Start > Run> Type java. it is not found then you should Add JAVA_HOME variable to the PATH.

Now we need to include %ANT_HOME%\bin in the Path Variable.

Now to confirm the above steps we should go to  Command prompt and type java -version. If it list out the java version details then you can confirm it as working fine.

Create the PhoneGap Application

Open a command prompt: > Navigate to the bin directory deep inside the downloaded PhoneGap folder. In my case it is  cd E:\PhoneGap\lib\android\bin

Now use create command to create a new PhoneGap project.
Create command sytax is  create<Project-Path><Bundle-Name><Project-Name>

Use the following commad

create E:\AndroidWorkSpace\MyFirstPhoneGapProject com.mycompany.myfirstphonegapapp MyFirstPhoneGapApp  and press Enter. Now you can navigate to the location
E:\AndroidWorkSpace\MyFirstPhoneGapProject to find the new PhoneGap project.
Done !!!