Scaling 10 million records in PostgreSQL table

Hi all,

      I have 10 million records in my postgres table.I am running the database in amazon ec2 medium instance. I need to
accessthe last week data from the table. 
It takes huge time to process the simple query.So, i throws time out exception error.

query is :
     select count(*) from dealer_vehicle_details where modified_on between '2012-10-01' and '2012-10-08' and
dealer_id=270001;

After a lot of time it responds 1184 as count

what are the ways i have to follow to increase the performance of this query?

The insertion also going parallel since the daily realtime updation.

what could be the reason exactly for this lacking performace?