Now working. The password can be set from within the pad editor.

Currently there are only two remaining issues:
 1 After the password is set, re-authentication is needed
 2 The toolbar button does not yet have a nice icon

static/js/pad2.js

@@ -51,6 +51,11 @@ function createCookie(name, value, days, path)
   document.cookie = name + "=" + value + expires + "; path=" + path;
 }
 
+function setPassword(){
+  console.log("setting password");
+  pad.setPassword($("#setpasswordfield").val());
+}
+
 function readCookie(name)
 {
   var nameEQ = name + "=";
@@ -489,6 +494,13 @@ var pad = {
       changedBy: pad.myUserInfo.name || "unnamed"
     });
   },
+  setPassword: function(newPassword){
+    pad.collabClient.sendClientMessage(
+    {
+      type: "setPassword",
+      password: newPassword
+    });
+  },
   changeViewOption: function(key, value)
   {
     var options = {