I suggest not using the GCC/AVR compiler.

I have used the IAR tool set for the AVR with much success. This fully professional tool set works very well and supports the Atmel JTAG ICE code debugging pod permitting source level debug. Of course the IAR tool set has a price tag on it similar to what you pay for a full Keil toolset but in my estimation it is worth every penny spent.

One of the best features if the IAR compiler that I like is how well the compiler is able to optimize code. This is way better than what the GCC tool can do. I have had two projects, using AVRs where product BOM cost had to be as low as possible. Using the IAR tool set we were able to target an MCU that had 8K of flash as opposed to having to use the more expensive 16K part. In one case I inherited code that someone else had prepared for a project using the GCC/AVR compiler that had completely filled a 16K ATMega16 and the told the client to redesign their hardware for a 32K part so that they could finish the last 35% or so of the coding. I took over, using the IAR tools in maximum optimize level, and completed the code targeted into the original ATMega16 with room to spare.

- mkaras