Initially, i was using the "options" with initAjax to make the ajax call. However, since i had to show an error message incase there was an empty response from the server after the reload, i decided to go the usual ajax route. I make the ajax call, get the response and then reload the tree.
So i did it like this in my javascript file
    var myObj = {getDynaTree :function(){
    //Refresh the dynatree
    $("#dynaTree").dynatree("option", "children", null);
    $.ajax({
        url: "myurl", 
        type: "POST", 
        dataType: "application/json", 
        headers:{'Accept' :'application/json',  'Content-Type':     'application/json' }, 
        data : JSON.stringify(myData),
        //handle the response
        complete : function(treeData)
            {
            $("#dynaTree").dynatree("option", "generateIds", true);      
            var parsedTreeData = JSON.parse(treeData.responseText);
            if(parsedTreeData.length ==0) {
                var parsedTreeData = [{title: "No documents found for the  search criteria, please revisit the criteria",
                    isFolder: false, tooltip: "No documents found for the search criteria, please revisit the criteria" }];
            } 
            $("#dynaTree").dynatree("option", "children", parsedTreeData);
            $("#dynaTree").dynatree("getTree").reload();
            }
        });
    }}
Calling function 
    $("#myLink").click(function() {  myObj.getDynaTree(); }
The dynatree was initialized in a seperate javascript file
    //Initialization for the dyna tree. 
    var treeData = [{title: "Dynamic Tree Demo",isFolder: false, tooltip: "Here, is your Dynamic Tree!" }];
    jQuery(document).ready(function() {
    initReqActions(treeData);   
    });
    initReqActions= function(myTree){
     $("#dynaTree").dynatree({
        checkbox: false,            
        selectMode: 2,
         // create IDs for HTML elements that are generated
          generateIds: true, 
          cookie: {
              expires :-1  
          },    
        children: myTree,           
        onQuerySelect: function(select, node) {
            if( node.data.isFolder )
                return false;
        },
        onClick: function(node, event) {
            if( ! node.data.isFolder )
                node.toggleSelect();
        },
        onDblClick: function(node, event) {
            node.toggleExpand();
        },
        onKeydown: function(node, event) {
            if( event.which == 32 ) {
                node.toggleSelect();
                return false;
            }
        }
    });
}