I wanted to update my python 2.6.1 to 3.x on mac but I was wondering if it's possible to do it using the terminal or I have to download the installer from python website?
I am asking this question because the installer is not updating my terminal python version.
The default Python on OS X shouldn't be messed with as it's used by the OS itself. If your default is 2.6.1 then you must have Snow Leopard.
If you just install from the standard 3.1 disk image then you can invoke it using python3.1 from the terminal (you don't have to do any extra steps for this to work) and you can leave the plain python as 2.6.1.