updated 12/4/2009 6:35:46 PM ET 2009-12-04T23:35:46

Microsoft and Yahoo have signed off on their plan to team up against Google in Internet search.

The step announced Friday seals the terms of a preliminary agreement announced in late July.

Government regulators still must approve the proposed partnership before Microsoft and Yahoo can begin working together.

The two companies believe they will clear that final hurdle early next year. If regulators give their blessing, Microsoft will begin to power Yahoo's search engine.

(Msnbc.com is a joint venture of Microsoft and NBC Universal.)

Microsoft and Yahoo were supposed to sign the final papers in late October, but held off to work out some fine points.

Combined, Microsoft and Yahoo handle 28 percent of the Internet searches in the United States, well behind Google's 65 percent, according to online measurement firm comScore Inc. Google is even more dominant in the rest of the world, with a global share of 67 percent compared to a combined 11 percent for Microsoft and Yahoo.

In return for turning the keys to its search engine over to Bing, Yahoo will keep 88 percent of the revenue from all ads that run alongside search requests on its site for the first five years of the deal. Yahoo also will have the right to sell search ads on some Microsoft sites.

Yahoo estimated the deal will boost its annual operating profit by $500 million and save the Sunnyvale, Calif.-based company about $200 million on annual capital expenditures because it won't have to invest as much in its own search technology.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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