You could install mod-php.
# for Ubuntu
apt-get install mod-php
apt-get install libapache2-mod-php5
The package-name can vary from distro to distro. Use apt-cache search or aptitude search to find the appropriate package.
Next step would be to enable the module in apache:
This should create a configfile in /etc/apache2/mods-enabled/ called php5.conf.
It should already contain all the configuration you need for a standard installation, so you can remove the AddHandler line from your .htaccess file.
Lastly you should restart your Apache2:
apache2ctl configtest && /etc/init.d/apache2 restart
This will first check the config for errors and only restart Apache2 if everything is all right.
Otherwise apache2 could get stopped but be unable to start again.