Apple just added a new resolution last year, that developers had to adjust to. If there will be a new resolution to support in iOS, it will be for the Retina iPad.
Why should they jump to 1280*720 when the iPhone 4 still is the device with the highest resolution on the market?
So the iPhone 5 display will be 960*640 and have a 3:2 aspect ratio, what size it will be is another thing to discuss.
Apple marketed the Retina display as a display beyond 300ppi.
With a resolution of 960*640:
3.5": 330ppi
3.6": 320ppi
3.7": 312ppi
3.8": 304ppi
3.9": 296ppi
4.0": 288ppi
If they want to stick to their marketing from last year, the display can only be 3.8" max.