If possible, remove the existing zend framework and install ZF using PEAR. It will be easier to update later:
pear channel-discover zend.googlecode.com/svn pear install zend/zend
It will also use PEAR include_path, so it should solve your problem.
If you cannot use a pear, try using a relative path with your include path:
// Ensure library/ is on include_path set_include_path(implode(PATH_SEPARATOR, array( realpath(APPLICATION_PATH . '/../library'), get_include_path(), )));
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