NodeJS ejs templates not rendering using template

I'm following Steven Senderson's posts about NodeJS. I have overcome the breaking code due to version change in Express as suggested in this question. Now when I am accessing my index.html page using localhost:13253 it is rendering contents of index.html as is. It is not rendering it using layout.html. I have traced it from ejs.js and ejs-middleware also the functions are called but layout is not being applied. The server code is as follows:

var express = require('express'),
app = express(),
api = require("./api/server.js"),
ejsm = require('ejs'),
ejsMiddleware = require('ejs-middleware');

app.use('/api', api);

app.use(ejsMiddleware(__dirname + '/Static', 'html', app));

app.use(express.static(__dirname + '/Static'));

app.listen(process.env.port || 12345);

EDIT:-

//INDEX.HTML

this is homepage

//layout.html

<!DOCTYPE html>

<html lang="en">
    <head>
        <meta charset="utf-8" />
        <title>Inventify (alpha)</title>
        <script type="text/jscript" src="/scripts/jquery-1.8.3.min.js"></script>
        <script type="text/javascript" src="/scripts/knockout-2.2.0.js"></script>
        <link rel="stylesheet" href="/Styles/app.css"/>
    </head>
    <body>
        <h1 class="site-title">
            <a href="/">Iventify<span class="version">(alpha)</span></a>
        </h1>
        <div class="main-container">
            <%- body %>
        </div>
    </body>
    <script type="text/javascript">
        alert('from template');
</script>
</html>

Run the express binary to generate the bare express project (it does this!),

./node_modules/express/bin/express

and for the part that says

app.set('view_engine', 'jade');

Change that to ejs. It will now read all files with .ejs as ejs templates.