Have a jar inside Eclipse, as James Camfield has written.
Then when you build (Ant, Maven, manually) for distribution, ensure the jar file is included with or within your application jar or war or ear or whatever file, and that any startup scripts include it on the classpath using the -classpath command line option for java, as VonC has written.
Don't worry about sticking the jars in the java extensions folder, all this will do is make you forget about it when it comes to sending your code to a third party to use, because they won't have it set up at their end.