How to run a Rails application within a gem?

I'm not sure if this sort of thing is very common, but I keep finding myself trying to create gems that are just wrappers around a Rails application.

My gem will have a generator to create a config.ru but the Rails application will live inside the gem's lib directory. I need to know how to "embed" a Rails application and configure it so that it can be run inside the gem.

For example:

$ mygem new project

mygem created a directory called "project" with the following files:

project/config.ru
project/widgets/
project/foobars/

My gem will also generate some directories that will need to be added to Rails somehow so that I can access the code in those directories from the Rails app living inside the Gem.

Any help or advice you can give me would be appreciated.

To clarify, I'm not trying to create a Rails engine, or plugin to a Rails application. I'm trying to create a fully-fledged Rails application, but package it as a gem so that a user of my gem can run the gem (the rails app) without needing to know that it's using Rails behind the scenes.

Update: Okay, I've got a little bit working now. I've created the gem and generated the rails project inside the gem's lib directory.

$ bundle gem my_gem && cd my_gem/lib
$ rails new my_gem --skip-bundle

Which leaves me with:

my_gem/
  my_gem.gemspec
  bin/my_gem
  lib/
    my_gem.rb
    my_gem/
      version.rb # generated by bundler
      # the rails app:
      app/
      config/
      Gemfile
      ...etc

Since this gem requires Rails, I started adding the gems defined in the Rails Gemfile as dependencies in the gem's Gemspec, but I'm a little confused as to how to handle the assets group in the Gemfile.

# Rails Gemfile
group :assets do
  gem 'sass-rails',   '~> 3.2.3'
  gem 'coffee-rails', '~> 3.2.1'
  gem 'therubyracer', :platforms => :ruby
  gem 'uglifier', '>= 1.0.3'
end

# gemspec
Gem::Specification.new do |gem|
  gem.name          = "my_gem"
  # ...
  gem.add_dependency 'rails', '3.2.8'
  gem.add_dependency 'sqlite3'
  gem.add_dependency 'jquery-rails'
  # how to add the assets group gems?
end