[jQuery] function from an external js does is not defined when using $(document).ready in the external file

[Yuval]

Hey Guys,
I have 2 files. index.html and settings.js

inside settings.js:

$(document).ready(function(){
function say_something(word){
        alert(word);
}
})

inside index.html

<script language="javascript">
$(document).ready(function(){
say_something("hello");
});
</script>

I am using Firefox 2 with Firebug and it claims the function is not
defined. The code does not work.
So why is this a jQuery problem, you ask?
Well, if I remove the $(document).ready call from the external file,
everything works fine!

this is what it looks like when it works:

inside settings.js:

//  no $(document).ready call
function say_something(word){
        alert(word);
}

inside index.html

<script language="javascript">
$(document).ready(function(){
say_something("hello");
});
</script>

I've been searching Google and the forum for almost 2 hours now with
no answer to why this does not work with $(document).ready. Any ideas?
Thank you,
Yuval

p.s. replacing <script language="javascript"> with  <script
language="text/javascript"> simply suppresses the error, it does not
solve the problem.