Google has announced an agreement that lets Yahoo use its AdSense for Search and AdSense for Content advertising programmes.

The news follows Microsoft's statement that it would be open to an alternative transaction to acquire Yahoo, and Yahoo's curt dismissal of any such deal.

Under the agreement with Google, Yahoo has the option to display Google ads alongside its own search results in the US and Canada.

In addition, Yahoo can serve contextually targeted ads on its US and Canadian web properties as well as on its current publisher partner sites.

The deal will not prevent Yahoo from continuing to operate its own search engine, web properties and advertising services.

In a further sign of rapprochement, Yahoo and Google agreed to enable interoperability between their respective instant messaging services to bring easier and broader communication to users.

Eric Schmidt, chairman and chief executive at Google, claimed that the deal is not anti-competitive.

"This agreement will preserve the competitive and dynamic online advertising space," he said.

The non-exclusive agreement allows Yahoo to enter into similar agreements with other advertising providers.

In addition, Yahoo will maintain relationships with its own advertising customers and will continue to rely exclusively on its own advertising programme outside the US and Canada.

The agreement has a term of up to 10 years: a four-year initial term and two three-year renewals at Yahoo's option. Financial terms were not disclosed.