If I am creating a toolbar that will be free to download and install, do I need permission from site owners to have their links on this toolbar ?

Legally you don't, but it's a nice common courtesy to let sites know what your doing - especially if the toolbar ends up sending a lot of high volume traffic to a usually low volume site.

got you .. thanks .
i will inform some sites ..

I suppose it also depends on the nature of the site to which you are directing traffic. If it's a retail site, I'm quite certain they would welcome the additional visits. But I will agree with jpavleck, informing them would be the courteous thing to do.

Vito

Most toolbars I've seen usually just has links back the toolbar maker's site. For example iNET could do a version of the iBar for download for your browser.