The agreement will enable Yahoo! to run ads supplied by Google alongside its own search results and on some of its websites in the US and Canada. Microsoft dropped its $44.6 billion (£22.6 billion) bid last month, but the Yahoo! chief executive, Jerry Yang, has since come under increasing pressure from investors, led by Carl Icahn, to agree to do a deal.
Google and Yahoo! are close to signing a deal to combine their search advertising systems, in a move designed to sound the death knell for any takeover of Yahoo! by Microsoft.