Problems with 500 server error installing multsite

I'm installing a new wordpress multisite on a home server (have got fixed 1p address) running Ubuntu. Every time I use the code generated (for subdomains) by Wordpress for the .htaccess file, I get a 500 server error. Have checked that mod rewrite is enabled. Error logs tell me that the error is due to: "Invalid command 'RewriteRule', perhaps misspelled or defined by a module not included in the server configuration"
It works fine when I restore the original .htaccess file and overrides are allowed in the .conf file...

The web address is