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You need to create a PK by adding constraint in ur target "data store" (Go to Models-> Your target Data store-> expand it, Right click on Constraints-> New Key and select ur PK in the Columns tab). Then u can see the PK in the drop down list of Update Key.
Also, FLOW_CONTROL has to be enabled if u need to to have "error capturing" mechanism (E$) etc, if not u can set it to FALSE.