Yahoo will be able to use Google's advertising technology after the two parties agreed a deal that will also see Google ads appear on Yahoo searches in the US and Canada.

"This commercial agreement provides Yahoo with the opportunity to deliver more relevant ads to users and provide advertisers and publishers with better advertising technology," said Eric Schmidt, Google chairman and chief executive.

The agreement will initially last for three years but there is scope to extend to 10 years should Yahoo choose to do so. Yahoo claims the deal could be worth up to £410m a year for Google.

"We believe that the convergence of search and display is the next major development in online advertising industry," said Yahoo chief executive Jerry Yang.