To make the Sendmail look for the hosts file as well as the DNS for name resolutions:
1) create a service.switch file in /etc/mail folder.
2) vi the service.switch file and add the below entry
hosts file dns
This will query the hosts file before querying the DNS server.
3) execute the below command
# kill -HUP `head -1 /var/run/sendmail.pid`
This will bring the changes into effect