During startup I see a flashing question mark.No hard disk

I have a problem with my iMac.During startup I see a flashing question mark.The problem occurs frequently so I decided to reinstal my system software,Mac OS X,but I cant't.In the pane where I'm prompted to select a disk,there is nothing there,no hard disk.It looks like I have a hardware problem since the drive is not even visible from within the Disk Utility application.

If I need to change the hard disk,the old one was Western Digital 500 GB, SATA/16MB, WD5000AAKS.I searched for this model,but I can't find it here in Greece,only WD5000AAKS SATA 2/32MB or SATA 3.I read on some forums that SATA2 is compatible with SATA1.What should I choose?Thank you!