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The proximity sensor was the key that made the iPhone work. When people say some other company invented the touchscreen smart phone first, I like to ask, did it have a proximity sensor?
You could say the same about the use of a capacitative display on glass rather than a resistive screen you operate with a stylus, or the high (for 2007) pixel density, or the smooth (for 2007) UI and animations, or inertial drag-to-scroll, or a whole bunch of other things the iPhone did first to make a touchscreen smart phone pleasant and enjoyable to use. I know that when I first used the OG iPhone, drag-to-scroll was the first thing that really felt like magic to me.

In reality, it's the combination of all those things and more that made the iPhone work, made it more appealing than anything Palm, RIM or Danger made. Just adding a proximity sensor, or one of the other things to that list, to a Palm Treo wouldn't have made it an iPhone.