You have to unplug your iPhone from the USB cable and replug it before it will try again.
If you click on a library or another device, then click on the iphone, iTunes will retry the connection without having to unplug/replug the phone. It took about an hour of clicking, but I was finally able to through and my phone restored A-O-K.
One funny thing I did notice was that when my phone finally reactivated, a screen popped up saying that no new activations can be processed. I'd be pretty tweaked if I had just bought a new phone and not be able to activate it!