Well, the best way to handle hills is to simply practice a lot. I used to have to walk up even short 5% grades. Now, less than half a year later, I love climbing, and I routinely encounter double digit grades.

As chipcom's alluding to, if you're not on clipless pedals (or toestraps), making the switch does make smooth pedaling a lot easier.

If you feel like you're just freewheeling in place, then that's great. Just keep at it, and if your pedaling speed increases enough, shift up a gear while retaining the feeling of freewheeling in place. Going in such an effortless manner won't win you any races, but it will allow you to climb the hill comfortably.

What I find helpful for sustained climbs is to sit up, put your hands on the tops, and not be afraid of shifting to lower gears. Keeping a reasonably high cadence really helps make climbing more comfortable. Also, for some extra power, you can pull on the bars with your hands. While it's not particularly comfortable to do so if you keep it up, you can generate quite a bit of extra power this way. If you find your cadence bogging down, that temporary boost of power can be of great help in getting your cadence back up. Alternatively, climbing while standing for a few seconds is a great way to get your cadence back up, too.