This should work ... the wait code was on the wrong place .... try this .

Code:
function Camera_OneFrame_Function()
{
   //normal contents of camera action while loop
   if(key_w)  camera.x += 5 * time_step;
   if(key_s)  camera.x -= 5 * time_step;
   if(key_a)  camera.y += 5 * time_step;
   if(key_d)  camera.y -= 5 * time_step;  
}

action Normal_Camera_Action()
{
	 while(1)
	 {
	 	//default lite-c camera
	 	Camera_OneFrame_Function();
	 	while(freeze_mode>0){wait(1);}
	 	wait(1);
	}
}

function pause()
{
	if(freeze_mode == 2)
		freeze_mode = 0;
	else
		freeze_mode = 2;
}