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Despite the agreement, Sun and Microsoft will continue to compete in the market for the software on server computers, which run corporate networks, and even in desktop PC software. In the last several months, Sun has been promoting its Java desktop system, which is an effort to undercut Microsoft's mainstay products, the Windows operating system and the Microsoft Office suite of programs.
"I'm not going to do it today, but later I'll tell you why I think our products are better," Mr. Ballmer said. "We're going to compete — no question."
The Sun-Microsoft agreement comes just one week after the European Commission delivered a stinging antitrust ruling against Microsoft in a case that began in 1998 with complaints from Sun.
The European action goes well beyond Sun's original complaint, which accused Microsoft of withholding the technical information needed by rivals to make their software work smoothly with the Windows operating system. Sun competes with Microsoft in the market for server software with its Solaris operating system.
The European ruling, which Microsoft is appealing, orders Microsoft to give rivals more technical information about the Windows desktop and Windows server programs. But the order also seeks to limit Microsoft's ability to bundle new products — like its software for playing music and video files sent over the Internet — into Windows.
Yesterday's settlement, legal experts said, has no direct impact on the European antitrust case. But the technology cooperation provisions of the agreement could give Sun greater access to the technical information that it had sought. That concession, legal analysts said, could help Microsoft as it continues to try to settle the European case.
In the last few years Microsoft has sought to settle the private antitrust suits that followed the federal antitrust suit brought by the Justice Department and several states. Microsoft lost the federal suit, which charged the company with abusing its monopoly power. But the company in 2001 reached a settlement with the Bush administration that curbed some of Microsoft's business tactics, but did not alter its basic strategy of adding new software to its Windows operating system, which runs on more than 90 percent of all personal computers.
In May 2003, Microsoft reached a $750 million settlement of an antitrust suit filed by AOL Time Warner, which is now Time Warner. But that settlement came after the executives who fought Microsoft from AOL and Netscape, which AOL bought in 1999, had left the company.
The Sun settlement is quite different in that old enemies have become peacemakers. "I am surprised," said A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company. "These guys are pretty formidable competitors."
Sun, in particular, had reason to compromise. Its big server computers, which run corporate networks, are losing out to lower-cost machines running Microsoft's Windows or Linux, an operating system that is distributed free.
The agreement gives Sun an extra dose of cash and needed technical cooperation from a big wealthy rival. It also sends a signal to investors that Sun is focused mainly on turning its business around.
The agreement and the cost-cutting steps, said Richard Chu, an analyst for S. G. Cowen, "sends a strong signal that they are serious about getting the business model back on track."
Sun also announced yesterday that Jonathan Schwartz, the 38-year-old former head of the company's software business, would become the president and chief operating officer. The move is seen as a sign that Sun will increasingly become a software company and shift its hardware strategy to rely more on lower-cost computers. Its recently introduced a business strategy to charge its corporate customers $100 an employee a year for unlimited use of all of Sun's server and desktop software.
"If you look at what we did in software you get all the clues for what we will now do as Sun Microsystems," Mr. Schwartz said in an interview.
John Markoff and Laurie J. Flynn in San Francisco contributed reporting for this article.
