If you want the AdSense ads to appear after each posts, paste the codes after the <$BlogItemBody$> as shown in the screenshot above.
Update: AdSense TOS place a maximum of 3 ad units on any page. Strictly, if you have more than 3 posts on the main page, that theoretically will place more than 3 ad units on the main page. I have more than 3 posts for this blog, and I have pasted the AdSense script such that the ad unit get displayed at the top of every page.
In fact, I also am supposed to have a Wide Skyscraper ad unit in the sidebar. However, AdSense detect that and do not display the extra ad units. The ad unit in the sidebar will only be displayed when one go to the individual post page (permalink), in which case, only 2 ad units will be displayed, one above that post, and one in the sidebar.
After reading the number of publishers who have their account suspended, I decided to be extra careful. To make sure, I contacted AdSense Help regarding the matter, and the reply was that it is OK for this particular blog. Whether this means we have to get clearance for every blogs that have this feature or not, I do not know. I think I will contact AdSense Help once more to make sure. Sure don’t want to have my account suspended.
You can leave things as it is and take the chance (or contact AdSense Help Center AdSense Help Center or just take the chance. Or you can ensure you comply with the TOS by adjusting the number of pages that get displayed on your main page, for example, if you only have ads in the post, adjust that to display only 3 pages in the main page).
UPDATE: I have been reading numerous reports of AdSense account holders having their account suspended, often without the exact reason for the suspension being given. I have contacted AdSense Help once more for a more definitive answer but the answer were vague, just referring to the fact that one should have a maximum of 3 ad units on each page.
As such, I have decided to stop using this for my site, and instead of putting ads in each post, I have put the leaderboard ad unit just below the header. Better to be safe than be sorry.
ANOTHER UPDATE: Another AdSense Publisher, Sherry, did her ads exactly as described in this post, and contacted AdSense Help Center for clearance. Her blog is here: AdSense and Affiliates. She got this reply:
Hello Sherry, Thanks for emailing us about our policies. I've reviewed your website and found the number of Google ads displayed to be in accordance with our program policies. On any given page, you're welcome to place up to: - three standard ad units - one link unit - two search boxes - four referral units for different products For additional questions, I'd encourage you to visit the AdSense Help Center (http://www.google.com/adsense_help), our complete resource center for all AdSense topics. Alternatively, feel free to post your question on the forum just for AdSense publishers: the AdSense Help Group (http://groups.google.com/group/adsense-help). I hope you find this information helpful. Sincerely, Lillian The Google AdSense Team
So folks, it is really up to you whether you want to use this method to display the AdSense ads or not.