Another iOS Hacker Nadeem Ateyeh has come up with new Pwnage toolBundleswhich will allow you to jailbreak your iPhone 4 and iPhone 3GS running on iOS 4.2.1 without the need of upgrading the baseband. The bundle in untethered for use with PwnageTool to allow creation of custom iPSW preserving both the baseband and booting untethered and Jailbroken. Ultrasn0w unlockers can use these bundles for later unlocking it using iPhone Dev Teams ultrasn0w tool.

Here's a Little Guide to Jailbreak iOS 4.2.1 iPhone 4/3GS using PwnageTool:

Requirements needed to Jailbreak your iDevice:

DownloadPwnageTool 4.1.3 for MaciOS 4.2.1 original firmware of your device saved on your computer (Download Here)iTunes10.1.2 installed on your Mac (Download link)

Modifying PwnageTool:

Step One: First of all download the PwnageTool Bundle for your iPhone 4 and extract the .zip folder,and copyiPhone3,1_4.2.1_8C148.bundle (for iPhone 4) oriPhone2,1_4.2.1_8C148a.bundle (for iPhone 3GS)to your desktop.

Step Two: Download PwnageTool 4.1.3 and copy the file to your Desktop. Right Click and then click on "Show Package Contents".

Step Three: Copy the .bundle files toPwnageTool.app/Content/Resources/FirmwareBundles/

Step Four: Copy info.plist goes inside PwnageTool.app/Content/Resources/CustomPackages/CydiaInstaller.bundle/ (IMPORTANT IF YOU WANT CYDIA IN YOUR IPSW)

How to Build a Custom Firmware:

Step One: Download and Launch the Latest Version of iTunes 10.1.12 and and Sync your iPhone 4 with your Mac to create backup.

Step Two: Start PwnageTool by Double-Clicking it, Click Expert Mode from top menu bar and select your iPhone 4 or 3GS. Click the Next Arrow Blue Button at the bottom of the screen to proceed.

Step Three: Click "Browse for IPSW" button and select your Firmware from the PwnageTool folder.

Step Four: When promoted to choose from several options, Press General and click on the Blue Arrow button below to proceed.

Step Five: Un-Check the Activate the phone under the General settings. That's because the bundle only supports legal activation otherwise.

Step Six: Select Cydia under the Custom Package settings and make sure that its added to the IPSW.

Step Seven: At this point you'll be done to start the Pwnage process, Click the Build Button and then select the arrow button below to start.

Step Eight: PwnageTool will create the custom .ipsw file for your iPhone. When prompted to save the file, Do so by saving it on your Desktop. It'll take 10-15 mins in building the file.

Step Nine: Now you'll restore your iPhone to this custom firmware iOS 4.2.1.

Click on your phone icon from the sidebar in iTunes.Press and hold left “alt” button (“Shift” button on Windows) on the keyboard and then click on “Restore” (Not “Update” or “Check for Update”) button in the iTunesNow, release the “Shift” button.

Step Ten: Now Select the location for your custom firmware 4.2.1 using iTunes once your iPhone successfully enter DFU mode.

Step Eleven: Upon Re-Entering iTunes, Hold ALT/Option key and click restore.

Step Twelve: Now select the Custom IPSW that you created earlier and select Choose Button. Wait for a while till iTunes installs the new firmware 4.2.1 on your iPhone. After the installation is done, iPhone 4 or iPhone 3GS will restart automatically. You have now successfully jailbroken iPhone running iOS 4.2.1.

Step Thirteen: You can restore all your settings after you're done with the Jailbreaking process by restoring the backup you created earlier in Step One.

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