Upgrade your iPhone firmware to 3

Update: iPhone 3.1.2(7D11) is out.

iPhone OS version 2.0 is out. lets look at the upgrade procedure.
Download iTunes

Be careful when you select the device (2G , 3G , 3GS).
Also make sure the file name is correct.
firmware for iPhone (2g) : iPhone1,1_3.1.2_7D11_Restore.ipsw

firmware for iPhone (3g):iPhone1,2_3.1.2_7D11_Restore.ipsw
check list:
PC or a Mac.
iPhone
USB cable
Working stable WiFi connection
patience

Download blackra1n: http://blackra1n.com/

Download the correct Firmware:

Download the exact firmware for your device from felixbruns.de (All credits goes to him)
make sure file name matches.

Now open iTunes, on the iPhone properties press SHIFT key + restore button. (ALT+OPTION key + restore button in Mac)

1. After restoration is complete, run blackra1n .
2. Press make it rain.
3. iPhone should show picture of geohot in few moments, then it will reboot.
4. Now your iphone 3.1.2 is jailbroken.

Run blackra1n application on your homescreen.

1. install cydia.
2. run cydia, let it update.
3. now search for bootneuter.
4. Install bootneuter app available from Bigboss repository.
5. Restart your iPhone.
6. Bootneuter app starts and turn on the Neuter under bootloader.
7. turn on unlock under Baseband section.

Finished.Now switch your SIM and yes , it is Unlocked.

nJoy.