Google today announced that it has reached an agreement that gives Yahoo! the ability to use Google’s search and contextual advertising technology through its AdSense for Search and AdSense for Content advertising programs. Under the agreement, Yahoo! has the option to display Google ads alongside its own natural search results in the U.S. and Canada.

                                                In addition, Yahoo! can serve contextually targeted ads on its U.S. and Canadian web properties as well as on its current publisher partner sites. Yahoo will continue to operate its own search engine, web properties and advertising services.
                                                In addition, Yahoo! and Google agreed to enable interoperability between their respective instant messaging services bringing easier and broader communication to users.
                                                “This commercial agreement provides Yahoo! with the opportunity to deliver more relevant ads to users and provide advertisers and publishers with better advertising technology to help them succeed in their own businesses,” said Eric Schmidt, Chairman and CEO of Google. “This agreement will preserve the competitive and dynamic online advertising space.”
                                                As a result of the agreement, Yahoo! will be able to complement its own advertising program with Google’s advertising technology. As a result, advertisers will be able to better reach consumers, and Yahoo! and its current publisher partners can generate more revenue. Yahoo can use Google’s advertising technology on as many or as few of its search results and content pages as it chooses.
                                                This 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 program outside of the U.S. and Canada. The agreement has a term of up to ten years: a 4-year initial term and two 3-year renewals at Yahoo!’s option. Financial terms between the two companies were not disclosed.

[Source Google Press Release]