Can an iTunes library be copied and used on two computers?

Earlier this month I tried to get an answer to a problem I was having with using iTunes on two different computers. Stubaan, pqh and GregoryBurbidge tried to assist me (thanks, guys) but I did a poor job explaining my issue. I'll try again...
Several years ago, after running short of space on the internal hard drive of my 2003 iMac G4, I purchased a 250 GB iomega ext hard drive and moved the iTunes library to it. No problems, the songs played just fine.
I recently upgraded my old iMac with a 2.8 GHz Intel core 2 Duo. I added a 1TB external drive via Firewire to the new machine. I gave my old G4 and 250 GB to my daughter, but before I did that, I "clicked and dragged" the iTunes library from my old 250 GB hard drive to the new 1TB drive, hoping that all the songs we had on the original iMac/external drive could be used on the new machine/external drive. It appears that the library was copied over successfully, but iTunes in my new iMac can't locate songs when I try to play them (the dreaded ! sign). I've gone into the preferences and tried to choose the iTunes library folder on the new hard drive as the location, but "no go."
Is it even allowable to copy over the iTunes library and be able to play all the songs on both the "old" computer and the "new" one.

Chris, Roaming and Mike:
Thanks for your responses. To answer Chris' question, when I originally moved what I thought was the library from my old iMac G4 to to my first external hard drive, I did it using Preferences -- Advanced--Change Music Folder Location option. I renamed the Music Folder "iTunes Location" and "consolidated the library" onto my old external hard drive. That worked fine. It was that "Music Folder" (what I thought was the "library") that I copied over (clicked and dragged) from the old external hard drive to the new external hard drive. The problem arose when I disconnected the old external hard drive and tried to play songs on my new iMac. The songs came up as not being found.
Is it an "authorization" issue, or something else. Thanks again for your help.

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Chris, Roaming and Mike:
Thanks for your responses. To answer Chris' question, when I originally moved what I thought was the library from my old iMac G4 to to my first external hard drive, I did it using Preferences -- Advanced--Change Music Folder Location option. I renamed the Music Folder "iTunes Location" and "consolidated the library" onto my old external hard drive. That worked fine. It was that "Music Folder" (what I thought was the "library") that I copied over (clicked and dragged) from the old external hard drive to the new external hard drive. The problem arose when I disconnected the old external hard drive and tried to play songs on my new iMac. The songs came up as not being found.
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OS X Mountain Lion: What is the Library folder?
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http://support.apple.com/kb/PH11395
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Can an iTunes library be copied and used on two computers?

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