iphone 3g ? 3gs ? which model ?
if its 3g ->the firmware stops at 4.2.1 for 3g imo.. and looks like u tried to update to 5.**..might be the reason u got stuck at activation

jailbreak is the only option you have ...
if att was working before!! it is locked to AT&T network so u wont have problem!!

and if u dont know how to jailbreak !! plz GOOGLE..

absintthe &redsnow bunch of applications out there!!
good luck