Is it an AT&T gift card or an Apple gift card?
You can buy an iPhone from either AT&T or Apple at the no-contract price, though it is significantly more than $199 - it will be $599 for the 16GB 3GS and $699 for the 32GB one. However, you won't be tied to a contract, though it will still be locked to AT&T and you'll need to sign up for some sort of plan with them to use it...