The case involved Netscape Communications which now belongs to the AOL group.

As part of the agreement, Microsoft will give a new royalty-free, seven-year licence of its browsing technology to AOL.

And it will provide technical information to AOL to ensure that its products run effectively on Microsoft's Windows operating system.

I'm excited about the opportunity to work together collaboratively to make the digital decade a reality Bill Gates, Microsoft chairman

The two companies will also work together to develop high-quality digital media over the internet.

More lawsuits

AOL alleged in the lawsuit that Microsoft used anti-competitive business practices to ensure the dominance of its Internet Explorer browsing software over Netscape's software.

AOL also argued that Microsoft made deals with computer manufacturers and other companies to shut out Netscape and stifle competition.

"While our companies will continue to compete, I'm pleased that we've been able to resolve our prior dispute and I'm excited about the opportunity to work together collaboratively to make the digital decade a reality," Microsoft chairman Bill Gates said.

AOL Time Warner's chairman and chief executive, Dick Parsons, said he welcomed the opportunity to build a more productive relationship with Microsoft.

"Our agreement to work together on digital media initiatives marks an important step forward."

There are still several other private lawsuits pending against Microsoft over anti-competitive behaviour.