Android : Android studio with gradle fails on DX - cannot create JVM

I spent many hours trying to compile an existing android project. I read many questions and answer but nothing led to a success :-(

I have the latest Android Studio 1.1, Windows 7 32 bit 4 GB RAM, latest JAVA 7 JDK. I have imported the project clicking on the graddle script and used default settings. A build fails:

What went wrong:
Execution failed for task ':preDexDebug'.
> com.android.ide.common.internal.LoggedErrorException: Failed to run command:
d:\dev\Android\sdk\build-tools\21.1.2\dx.bat -JXmx1536m --dex --output build\intermediates\pre-dexed\debug\ormlite-android-4.47-e94fb500fe18e4fbb4dcc83fc92d6bc42e27394d.jar C:\Users\leos.literak\.gradle\caches\modules-2\files-2.1\com.j256.ormlite\ormlite-android\4.47\c72f9ed54d8a8bab3fbf56da2b358308a67899a4\ormlite-android-4.47.jar
Error Code: 1
Output:
Error: Could not create the Java Virtual Machine.
Error: A fatal exception has occurred. Program will exit.

I spent a day trying all solutions I found on SO: I increased memory, uninstalled java, updated SDK, cleaned project, synced graddle, reimported project .. And they did not work for me. Please use answers or comments instead of marking this question as duplicate so we can elaborate this issue.

dependencies {
    classpath 'com.android.tools.build:gradle:1.0.1'
    classpath group: 'org.tmatesoft.svnkit', name: 'svnkit', version: '1.7.11'

compileSdkVersion 19
buildToolsVersion '21.1.2'

I really have no clue what to do. Thank you for any hint.