The relativistic theory of unconstrained p-dimensional membranes (p-branes) is further developed and then applied to the embedding model of induced gravity. Space-time is considered as a 4-dimensional unconstrained membrane evolving in an N-dimensional embedding space. The parameter of evolution or the evolution time τ is a distinct concept from the coordinate time t=x0. Quantization of the theory is also discussed. A covariant functional Schrödinger equation has a solution for the wave functional such that it is sharply localized in a certain (...) subspace P of space-time, and much less sharply localized (though still localized) outside P. With the passage of evolution the region P moves forward in space-time. Such a solution we interpret as incorporating two seemingly contradictory observations: (i) experiments clearly indicate that space-time is a continuum in which events are existing; (ii) not the whole 4-dimensional space-time, but only a 3-dimensional section which moves forward in time, is accessible to our immediate experience. The notorious problem of time is thus resolved in our approach to quantum gravity. Finally we include sources into our unconstrained embedding model. (shrink)