@Mwathi
Please follow this instructions - do not let iTunes download  and install the software for you.
Rather download the SW versions from point (2). If you have baseband/firmware 05.12.01 - then your jailbreaking and unlock task will be a bit harder!

1) download redsn0w [8, 8.2 etc] from this site - or through rapidshare / any torrent. We also have redsn0w 9, some versions of which are still beta.

http://filespump.com/redsn0w-0-8-zip.html

2)  carefully follow instructions on this site [ the hardest part is to play with the power and home button, you need Gaming fingers ]

http://www.aboutonlinetips.com/jailbreak-unlock-iphone-301/

-you will be needed to do a few downloads if you do not have the right firmware. iTunes usually automatically deletes the firmwares anytime you try to download one, I wonder why.
-you can find your firmwares under this path in Vista:

"C:\Users\username\AppData\Roaming\Apple Computer\iTunes\iPhone Software Updates\iPhone1,2_3.XXXXX

-you can google for your OS path, if its not Vista

3) once you are through, some may wonder what the instructions at the end of the above link are. One is supposed to download ultrasn0w directly using their phones.
   You will need internet for that, thus you must have some credit/data capability on your simcard or wi-fi.

-To download ultrasnow, go to this link: ultrasn0w accomplishes the 'Prison Break'

http://www.aboutonlinetips.com/download-ultrasn0w-to-unlock-iphone-3g-30/

-To add a Cydia repo, read this link.

http://modmyi.com/wiki/index.php/Adding_a_repo_to_Cydia

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