Jpeg image won't scale to fit box. Any ideas?

I am trying to add text to my scanned watercolor illustrations for a childrens book I wrote.  I am using Illustrator and I just loaded a jpeg image into illustrator, and it is HUGE!  I tried to use the scale tool and I can't figure out how to get the jpeg image to shrink down to fit in the box!  All I get is a blue snowflake and also a menu w/ choice of uniform or nonuniform for the scale.  Don't understand.  This is totally confusing!  I am using CS3.  Any ideas?

What are the physical dimensions of the jpeg?
Open it in Photoshop and check Image Size in inches or centimetres.
If you want to make it smaller, increase the resolution (ppi) without resampling.

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