To begin with, chroot inside the encrypted partition and create the boot device mount point:

chroot /mnt/efs
mkdir /loader

Then, create the initial ramdisk (initrd), which will be needed afterwards:

cd
dd if=/dev/zero of=initrd bs=1k count=4096
mke2fs -F initrd
mkdir ramdisk
mount -o loop initrd ramdisk

If you're using grsecurity, you may get a "Permission denied" error message; in this case you'll have to run the mount command outside chroot.

Create the filesystem hierarchy and copy the required files in it:

mkdir ramdisk/{bin,dev,lib,mnt,sbin}
cp /bin/{bash,mount} ramdisk/bin/
ln -s bash ramdisk/bin/sh
mknod -m 600 ramdisk/dev/console c 5 1
mknod -m 600 ramdisk/dev/hda2    b 3 2
mknod -m 600 ramdisk/dev/loop0   b 7 0
cp /lib/{ld-linux.so.2,libc.so.6,libdl.so.2} ramdisk/lib/
cp /lib/{libncurses.so.5,libtermcap.so.2}    ramdisk/lib/
cp /sbin/{losetup,pivot_root} ramdisk/sbin/

It's ok if you see a message like "/lib/libncurses.so.5: No such file or directory", or "/lib/libtermcap.so.2: No such file or directory"; bash only requires one of these two libraries. You can check which one is actually required with:

ldd /bin/bash

Compile the sleep program, which will prevent the password prompt being flooded by kernel messages (such as usb devices being registered).

cat > sleep.c << "EOF"
#include <unistd.h>
#include <stdlib.h>

int main( int argc, char *argv[] )
{
    if( argc == 2 )
        sleep( atoi( argv[1] ) );

    return( 0 );
}
EOF

gcc -s sleep.c -o ramdisk/bin/sleep
rm sleep.c

Create the init script:

cat > ramdisk/sbin/init << "EOF"
#!/bin/sh

/bin/sleep 3

echo -n "Enter seed value: "
read SEED

/sbin/losetup -e aes256 -S $SEED /dev/loop0 /dev/hda2
/bin/mount -r -n -t ext3 /dev/loop0 /mnt

while [ $? -ne 0 ]
do
    /sbin/losetup -d /dev/loop0
    /sbin/losetup -e aes256 -S $SEED /dev/loop0 /dev/hda2
    /bin/mount -r -n -t ext3 /dev/loop0 /mnt
done

cd /mnt
/sbin/pivot_root . loader
exec /usr/sbin/chroot . /sbin/init
EOF

chmod 755 ramdisk/sbin/init

Umount the loopback device and compress the initrd:

umount -d ramdisk
rmdir ramdisk
gzip initrd
mv initrd.gz /boot/

I strongly advise you to start your system with a read-only media, such as a bootable CD-ROM.

Download and unpack syslinux:

wget http://ftp.kernel.org/pub/linux/utils/boot/syslinux/syslinux-3.07.tar.bz2
tar -xvjf syslinux-3.07.tar.bz2

Configure isolinux:

mkdir bootcd
cp /boot/{vmlinuz,initrd.gz} syslinux-3.07/isolinux.bin bootcd
echo "DEFAULT /vmlinuz initrd=initrd.gz ro root=/dev/ram0" \
    > bootcd/isolinux.cfg

Create and burn the bootable cd-rom iso image:

mkisofs -o bootcd.iso -b isolinux.bin -c boot.cat \
        -no-emul-boot -boot-load-size 4 -boot-info-table \
        -J -hide-rr-moved -R bootcd/

cdrecord -dev 0,0,0 -speed 4 -v bootcd.iso

rm -rf bootcd{,.iso}

The boot partition can come in handy if you happen to lose your bootable CD. Remember that hda1 is a writable media and is thus insecure; use it only in case of emergency!

Create and mount the ext2 filesystem:

dd if=/dev/zero of=/dev/hda1 bs=8192
mke2fs /dev/hda1
mount /dev/hda1 /loader

Copy the kernel and the initial ramdisk:

cp /boot/{vmlinuz,initrd.gz} /loader

If you use grub:

mkdir /loader/boot
cp -av /boot/grub /loader/boot/
cat > /loader/boot/grub/menu.lst << EOF
default 0
timeout 10
color green/black light-green/black
title Linux
    root (hd0,0)
    kernel /vmlinuz ro root=/dev/ram0
    initrd /initrd.gz
EOF
grub-install --root-directory=/loader /dev/hda
umount /loader

If you use lilo:

mkdir /loader/{boot,dev,etc}
cp /boot/boot.b /loader/boot/
mknod -m 600 /loader/dev/hda  b 3 0
mknod -m 600 /loader/dev/hda1 b 3 1
mknod -m 600 /loader/dev/hda2 b 3 2
mknod -m 600 /loader/dev/hda3 b 3 3
mknod -m 600 /loader/dev/hda4 b 3 4
mknod -m 600 /loader/dev/ram0 b 1 0
cat > /loader/etc/lilo.conf << EOF
lba32
boot=/dev/hda
prompt
timeout=60
image=/vmlinuz
    label=Linux
    initrd=/initrd.gz
    read-only
    root=/dev/ram0
EOF
lilo -r /loader
umount /loader