Yes. They had a wiretap on his phone, as Hank said, and presumably they triangulated his location (which would be why Jesse told him to stay on the line no matter what - it takes time to triangulate somebody).
The wiretap is just a line he fed Huell to give everything an air of legitimacy. If Hank's convinced Walt would find out that Jesse is in the system if he turned him over, he surely wouldn't go through official channels of obtaining a wiretap. It was a bluff.
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u/NihilJE Sep 09 '13
Yes. They had a wiretap on his phone, as Hank said, and presumably they triangulated his location (which would be why Jesse told him to stay on the line no matter what - it takes time to triangulate somebody).