Microsoft has agreed to pay $750m (£455m) to AOL Time Warner to end the bitter 18-month legal battle over whether Microsoft unfairly established its Internet Explorer web browser.

AOL had alleged that Microsoft abused its desktop near-monopoly to promote Internet Explorer and try and kill off AOL's rival Netscape browser.

The two industry giants have clashed over a number of internet technolgies in the last three years, but the agreed settlement should see more cooperation in the future.

Part of the settlement sees Microsoft provide a royalty-free, seven-year licence to use its Internet Explorer technologies with the AOL client.

And Microsoft has made a commitment to make available technical information contained in beta versions of its Windows operating system to AOL at the same time that its makes them available to other independent software vendors (ISVs).

The Redmond giant must also ensure that AOL can participate in other programmatic offerings relating to the development of its next-generation 'Longhorn' version of Windows on the same terms and at the same time as other ISVs.

In addition, the two companies have entered into a long-term, non-exclusive licence agreement allowing AOL Time Warner to use Microsoft's Windows Media 9 Series digital media platform, as well as subesquent Microsoft digital rights management software.

They have also agreed to explore ways to establish interoperability between AOL and MSN Instant Messenger.

"We welcome the opportunity to build a more productive relationship with Microsoft," said Dick Parsons, chairman and chief executive at AOL Time Warner. "Our agreement to work together on digital media initiatives marks an important step forward."

Bill Gates, Microsoft chairman and chief software architect, said: "We believe we can accelerate the adoption of digital media for the internet and help content providers across the entire industry.

"While our companies will continue to compete, I'm pleased that we've been able to resolve our prior dispute."