All you need to do is connect it with itunes, then click back up. Once you've backed up your iphone you'll want to hit the update button. Let it update to the most current version 2.2.1
Here's a good guide to follow to determine which system is best for you: CLICK HERE
There are a lot of variables depending on your current iPhone (2G or 3G), Platform (Mac or Windows), etc.
I see you're on a Mac but even the OS can make a difference (mainly 10.5.6).
Follow the above flow chart to see what particulars apply to you, and it'll give you a link whereby you can download exactly what you need for want you want to do. Do read through the guide first though to make sure everything does indeed apply to you.
It can be a bit of a minefield at 1st but the above should make it fairly straight forward.
Any problems and there's plenty here who can help.