How do I back up my contacts from my iPhone to iTunes

My mobile phone carrier (optus) is preparing us for the delivery of the IPhone 4, and to get ready they are changing us from our old SIM card to a new "MicroSIM". I am confused with step 1...
Step 1. Connect your current iPhone to iTunes to back up your contacts as you will need to move them from your old SIM to the new SIM (which I have ready to go)....How do i do this? Am i just syncing my contacts with my yahoo address book. This doesn't seem right.
the other steps I think I'm okay with...
2. swap the SIM over, and follow some steps with my phone carrier
3. sync iPhone to Itunes again to restore contacts
4. SIM swap is complete, and this new "microSIM" is ready to go when the new iPhone 4 is delivered.
Your help is appreciated with Step 1.....thanks

thanks for your reply, but Im still a little confused.
I do currently have an iPhone 3G, and they want me to use theis new SIM card until delivery of my new iPhone 4.
So, the contacts that i currently have in my phone are different to my contacts in my yahoo account. My yahoo account basically just has all email addresses and that's it.
So, do I have to update my yahoo contact list first, then "sync"? Does this then mean I've backed them up also?
Or, when I sync, will it take my contacts from my phone into iTunes and my yahoo account??

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