Just curious to know, why are you performing a system copy from a Non-Unicode system to a Unicode system?
>>R/3 system not supported with kernel 721
Why are you using 721 release kernel?
If the source system is ERP 6 EHP7 then the kernel should be the one that is supported for this release. You should use the same kernel set which the source system uses. All these manual work can be avoided if you do a system copy using sapinst.
Also check if the source system DB and OS are on the same release and version.
When you update the kernel make sure you delete all the kernel files from the previous release from the DIR_CT_RUN and DIR_EXECUTABLE locations. Your problem looks most likely due to the wrong kernel.