SAN FRANCISCO — America Online yesterday agreed to sell a 5 percent stake to Google Inc. in a $1 billion deal that deepens the ties binding two of the Web's most popular sites while thwarting Microsoft Corp.'s efforts to grab a larger piece of the booming Internet advertising market.

Approving the expanded alliance had been considered a mere formality since last Friday when AOL's corporate parent, Time Warner Inc., abruptly ended several months of negotiations with Microsoft, which had hoped to supplant Google as AOL's main advertising partner.

Many of the details, including a plan that may display more graphical ads on Google's traditionally sparse Web pages, had been leaked to the media in the past few days. None of the so-called banner ads will appear on Google's home page or alongside its primary search results.

There was one significant new twist in yesterday's official announcement: users of AOL's Internet-leading instant messaging service will be able to communicate with the users of Google's 4-month-old service. Microsoft and Yahoo Inc., another major rival of both Google and AOL, plan to link their instant messaging services next year.

Google's aggressive courtship of AOL illustrates how seriously it regards the looming threat posed by Microsoft as the world's largest software company eyes the lucrative field of online search — a specialty that Google has so far dominated to emerge as a corporate powerhouse in its own right.

"This is a very big deal for us, something I have wanted to do for a long time," Google CEO Eric Schmidt said during an interview yesterday.

The battle for AOL illustrates the rising importance of the online advertising market as a steadily growing number of people spend more time surfing the Internet instead of watching television, listening to the radio or reading newspapers.

About $12 billion is expected to be spent on Internet advertising this year, a 25 percent increase from $9.6 billion last year, according to the Interactive Advertising Bureau, a trade group. By 2010, worldwide spending on Internet ads could swell to $55 billion, with Google and Yahoo positioned to be the biggest beneficiaries, predicted Piper Jaffray analyst Safa Rashtchy in a report earlier this month.

Had Microsoft been able to win over AOL, it would have become a much more prominent player in Internet advertising while dealing a financial blow to Mountain View, Calif.-based Google.

AOL accounted for about $420 million, or 10 percent, of Google's revenue during the first nine months of 2005. After subtracting the commissions paid to AOL, Google wound up keeping about $63 million of the ad revenue, estimated Internet analyst Mark Mahaney of Citigroup.

AOL's rebuff of Microsoft also demonstrates how much it prizes its relationship with Google, which has built a network where more than 200,000 businesses and Web sites now bid for the right to have their ads distributed across the Internet. Google began distributing ads to AOL three years ago.