When trying to configure SMTP AUTH and TLS in sendmail on Debian to allow authenticated relay, the AUTH parameter is not listed from EHLO:

# telnet localhost 25
Trying 127.0.0.1...
Connected to localhost.
Escape character is '^]'.
220 server.domain.com ESMTP Sendmail 8.14.3
ehlo localhost
250-server.domain.com.local Hello localhost [127.0.0.1], pleased to meet you
250-ENHANCEDSTATUSCODES
250-PIPELINING
250-EXPN
250-VERB
250-8BITMIME
250-SIZE
250-DSN
250-ETRN
250-DELIVERBY
250 HELP
quit

Changes to sendmail.mc do not resolve the issue.

If the sendmail log level is set to 13 the following can be seen in /var/log/mail.warn:

AUTH warning: no mechanisms

/etc/default/saslauthd has the following parameters set

START=yes
MECHANISMS="pam"

Ensure the libsasl2-modules is installed:

# apt-get install libsasl2-modules

# dpkg -l | grep sasl
ii  libsasl2-2                        2.1.22.dfsg1-23+lenny1     Cyrus SASL - authentication abstraction library
ii  libsasl2-modules                  2.1.22.dfsg1-23+lenny1     Cyrus SASL - pluggable authentication modules
ii  sasl2-bin                         2.1.22.dfsg1-23+lenny1     Cyrus SASL - administration programs for SASL users database

# telnet localhost 25
Trying 127.0.0.1...
Connected to localhost.
Escape character is '^]'.
220 server.domain.com ESMTP Sendmail 8.14.3
ehlo localhost
250-server.domain.com.local Hello localhost [127.0.0.1], pleased to meet you
250-ENHANCEDSTATUSCODES
250-PIPELINING
250-EXPN
250-VERB
250-8BITMIME
250-SIZE
250-DSN
250-ETRN
250-AUTH DIGEST-MD5 CRAM-MD5 LOGIN PLAIN
250-STARTTLS
250-DELIVERBY
250 HELP
quit

SMTP AUTH in sendmail 8.10-8.13
http://www.sendmail.org/~ca/email/auth.html