The script solved the trickiest problem of opening up the tab, the rest was creating a scaffolding around it for it to be used as a toolbar action. For that I created a Automator Application with the following sequence -
1. Drag the "Get Selected Finder Items" as first action
2. Drag the "Run Applescript" as subsequent action
3. Replace the script with the following code
4. Save the application in ~/bin/Open in iTerm.app
|Open in iTerm - Automator action sequences|
5. Copy /Applications/iTerm.app/Contents/Resources/iTerm.icns
6. Navigate to ~/bin/Open in iTerm.app/Contents/Resources, rename AutomatorApplet.icns to AutomatorApplet.bak.icns and paste and rename iTerm.icns as AutomatorApplet.icns
7. Navigate to ~/bin folder, drag Open in iTerm.app to the toolbar
Congratulations !!! You are all set to use your context sensitive Open in iTerm toolbar action.
PS- You can download the application Open in iTerm from here.