gem update --system updates only RubyGems.
gem update update all installed stones to the latest versions, so it will upgrade Rails to 3.0.0.
Before upgrading gems, you can freeze your app on Rhine 2.3.8 by doing
rake rails:freeze:gems
in the application folder. Thus, your application will be associated and run in rails 2.3.8, even if you upgrade the global stone to rails 3.
At any time, you can install a specific version of rails through:
gem install rails -v 2.3.8 (or another version of your choice)
This can potentially install multiple versions of gem at the same time, so you can create and develop an application with any version that suits you.
Or you can install RVM to create and switch between any number of ruby / rails development environments, for example. Ruby 1.8.7 with Rails 2.3.9 and ruby 1.9.2 with Rails 3.0.0, etc.
svilenv
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