Hello Atul,
You have to activate either the business function IC and Communication-Enabled Business Processes(CRM_IC_CEBP) or Multifunctional Shared Service Interaction Center (CRM_SHSVC).
After the BF is activated , the customizing node will start appearing in CRM->transactions->basic settings->checklist settings.
If you are on CRM 7.0 EHP 3 , there is a new Business Function which will also enable decision based checklists.
Hope this helps.
Regards,
Parveen