Given that the iPhone already represents a groundbreaking merger of cell phone, iPod, and Web browser, would there really be a market for a new mini-tablet computer a little larger than an iPhone? Bigger than an iPhone but less capable than a full-fledged computer, an “iSlate” device would be in an awkward middle zone, said analyst Greg Sterling.

Could this be the return of the Newton? AppleInsider reports that Apple has been slowly but persistently working on a mini-tablet computer, a little larger than the iPhone, sporting Apple’s multitouch technology and an embedded version of OS X. The Apple rumor site claims that the product has been under development for the past 18 months. Although engineers had been pulled off the project to work on the iPhone, they have now returned full-force to developing a handheld computer.