A MIDAIR COLLISION OCCURRED ABT 2.8 MI WEST OF PALO ALTO ARPT (PAO) AS CESSNA 152, N152SC, WAS ON A LEFT X-WND DEP FM RWY 30 & MOONEY M20J, N5201Y WAS TRANSITTING THE ARPT TRAFFIC AREA (ATA) FM SE TO NW & DSCNDG FM 2400' TO 1500'. N152SC WAS ON TWR FREQ. N5201Y (ON A TRAFFIC WATCH FLT FOR A LCL RDO STN) HAD JUST BEEN GIVEN A FREQ CHG TO SAN CARLOS (SQL) TWR TO TRANSIT ITS ATA, WHICH WAS NEXT TO THE PAO ATA. THE LCL CTL PSN AT PAO WAS BEING WORKED BY A DEVELOPMENTAL CTLR (D/C) UNDER SUPVN OF THE TWR SUPVR. HE DIDN'T IDENT N5201Y ON HIS BRITE RADAR. THE SUPVR SAW A PSBL CONFLICT DEVELOPING & WAITED A FEW SEC BFR ISSUING AN ADZY TO SEE IF THE D/C WOULD SEE & RESOLVE IT. THE SUPVR THEN TRANSMITTED A TRAFFIC ADZY TO N152SC, BUT THERE WAS NO REPLY. ABT 9 SEC LTR, THE 2 ACFT CONVERGED & COLLIDED. NEITHER AIRCREW SAW THE OTR ACFTIN TIME TO AVOID A COLLISION, BUT BOTH WERE ABLE TO LND SAFELY. THE D/C HAD 8 HRS OF OJT IN THAT PSN. THE AIRSPACE WAS COMPLEX WHERE 5 ATA'S ADJOINED EACH OTHER; THE VARIABLE TCA FLOOR SEGMENTS RANGED FM 4000' OVER PAO TO 1500' OVER SQL.