I just did an article on this a little while back here it is.
For the past year I have been experimenting with different ways of restoring hazy and yellow headlamps to there original crystal clear appearance. This is an easy project for the do it yourselfer and would take approximately an hour or two to make them like new.
First step is to clean them with any mild detergent. Glass cleaner will work just fine. Next I tape off all of the painted areas that I don't want to accidentally hit with the sand paper. Now the fun begins. Starting with 800 grit wet/dry sandpaper I wet sand each lens until all of the degraded plastic is removed. You will see what I am talking about once you start to sand. I then clean the area again to remove any grit left over from the sanding. Then I go to 1000 grit wet/dry sandpaper and generously sand each lens again. You will start to see the lens get clearer as you sand. After wiping down the lens again I finish the sanding with 3000 grit. Again you will notice the difference as you complete this step. Now its time to polish.
There are many kinds of plastic polishes available. Maguires and 3M are pretty good, I personally use a product that Cornwell Tools has. This will be the most labor intesive part of the job. I have a mini polisher so it go pretty quick for myself but it can still be done by hand with the same results. Polish until crystal clear! You may notice a few places that you missed after polishing, just repeat the above steps and they will look like new.
Here are the latest before and afters. This was a 98 ford contour and took me about an hour to get them 99% perfect!!
Before

After

