The United States Air Force identified them as flares dropped by A-10 Warthog aircraft which were on training exercises. A video illustrating this explanation was broadcast on a special on Fox Television stations about a year after the event (I saw it). A copy of the original video was used in coordination with a video shot in the daytime from the exact same location. The two videos were merged into one on a frame by frame basis, so that the landmarks (both in the foreground and background) were always perfectly aligned. This allowed analysis of the lights regarding their apparent height above the mountain, and it was easily seen that the lights vanished in line with the outline of the mountain. Military flares such as these can be seen from hundreds of miles with correct environmental conditions. This can explain why the flares were seen from the Nevada state line and Tucson. Later comparisons with known military flare drops were reported on local television stations, showing dramatic similarities between the known military flare drops and the Phoenix Lights
Airforce pilot, Lt. Col. Ed Jones, came forward in early 2007 claiming responsibility for the drop of leftover flares on the night in question, and claims to be a pilot of one of the four A10s in the squadron that he says launched the flares.
Fox video:
http://www.youtube.com/watch?v=i8BWwd1ciKk
Ref:
http://en.wikipedia.org/wiki/Phoenix_Lights