The iPhone 4 has a 960x640 resolution (and a scaling factor of 2) which is twice the original 480x320 resolution, resulting in 330 PPI. An iPhone 5 with a 4" screen and the same resolution would result in 288 PPI. The only possible resolution increase for the iPhone 5 would be 1440x960 (and a scaling factor of 3 -- it's the scaling factor that keeps everything the same physical size) which with a 4" display would result in 430 PPI.
At 1440x960 (1.38m) we're looking at a little more than twice the pixels of 960x640 (614k) and it probably isn't worth it considering that 288 isn't too far off 330 (which is what we have now) and it's likely you won't notice much of a difference, if at all. That means the 1440x960 resolution would put roughly twice the amount of pressure on the GPU, which means developers are more restricted with the quality of graphics (in games) that they can use.
Then you've also got another problem -- that is, further increasing the difference in PPI between what an iPad with a retina display would have (263 PPI) and what the iPhone 5 would have (430 PPI). That's something that Apple doesn't want (or anyone, for that matter).
And then on the issue of increasing the resolution without increasing the scaling factor from 2 to 3 which results in more space (smaller content), it just isn't going to happen because (aside from the fact that the size of the text, icons, and so on is quite good as it is) Apple isn't about to fragment their entire iPhone App Store.
Summary:
So, we won't be seeing an increase in resolution at all. The cons significantly outweigh any benefits for the increase without scaling (for more space, smaller content) due to fragmentation, unnecessary GPU strain, lower quality graphics in games, etc.
And, it's not really worth it for an increase with scaling (same physical size, more detailed) not only because of the additional strain on the GPU and then the lower quality graphics, but because the difference between 288 PPI and 430 PPI is likely to be unnoticeable with but a few exceptions: Games, Movies, Photos -- they'd all look great, especially the former (although that would be somewhat countered with lower quality graphics). So, all in all there's not really any benefit to increasing the resolution.
The iPhone 5: 4" 960x640 display (288 PPI)
The iPad 3: 9.7" 2048x1536 display (263 PPI)
Perfect.