HT201263 my iphone 4 went into recovery mode & will not restore. Unknown error 21 comes up on iTunes. Please can someone offer any ideas for a solution?

I have an iphone 4 nearly 2 yrs old. It has worked perfectly for that time. On Friday last (whilst away on holiday) I took the phone out of my pocket & it was lifeless. I tried switching it on, no joy, I tried the power/home button reset no joy. I plugged it into a mains charger & it came on but had a banner across the screen saying "verification required". I removed the charger & decided I would try again when I got home so I could connect to my PC & iTunes.
At home I went through the whole above process again but when I plugged it into the mains again it just had the Apple logo going on/off repeatedly. I plugged the phone into my PC & the apple logo appeared followed by the "connect to iTunes". In iTunes I get the banner "iTunes has detected an iPhone in recovery mode. You must restore this iPhone before it can be used with iTunes". So I click on "OK" the "Restore" then a banner asking if I'm sure I want to restopre the iPhone appears, press "Restore & Update". iTunes starts to remove the software, veryfies it with Apple & then another flag "The iPhone could not be restored. An unknown error occurred (21) which appears to be a security issue.
I thought the above problem was something to do with O2 because I picked up my new iPhone 4S last Tuesday but was unable to set it up until I got back from my holiday, O2 say it isn't anything they've done.
My question is has it happened to anyone & can anybody offer a solution, is it a hardware or software issue?

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