Instance variables usually don't need to be declared explicitly. They're created when you @synthesize the property. If you do want them, though, the (new) correct place* is at the top of the implementation block:
@implementation Level
{
PlayBackgroundLayer* playBGLayer;
PlayUILayer* playUILayer;
PlayElementLayer* playElementLayer;
}
Those aren't static methods, they're class methods, but, yes, that's where you declare them. Some people like to put @property declarations before the class methods, but that's a matter of opinion. Instance methods go after both of these, although technically speaking the order doesn't matter -- that is, the compiler doesn't care, it's just a matter of readability.
Those top-level variables need to go somewhere other than a header file, though. If you put them there you will get compilation errors because every file that imports the header will appear to be re-declaring storage for those variables, which isn't allowed.
Ususally you put such variables into a .m file. If you want them to only be visible from there, you would use static. If you want them visible from other files that import the header, you leave static off and declare the variable as extern in the header:
extern Level* currentLevel;
This lets the compiler know that the storage for the variable is reserved elsewhere.
*See "Class Interface" in TOCPL.