In ArcGIS 10.1 the Topo to Raster tool was enhanced and you can now use the 'Cliff' option when setting the type of layer for input. It should work like a 'barrier' or 'fault'.
Kieran,
If you have contour data you can use Topo to Raster, or if it is very large (since Topo has some limits) you could build a TIN/Terrain dataset, then convert to raster using one of the conversion tools.
What problems are you encountering, if any?
Best,
Eric