Will Yahoo make good on its threat to hook up on an ad deal with Google? Will Microsoft get jealous (of course it will be jealous, but will it show it with a new, angrier ultimatum)? And will any of it make any difference in the end game? Some market observers are saying that despite steps Yahoo and Google have taken in recent days to up the ante, there’s nothing much they can get up to (at least, under the terms they’re discussing) that could permanently thwart Yahoo’s bloodthirsty suitor. Unless, Yahoo uses the Google deal as leverage to cement a merger with somebody else (hello, are you listening, Time Warner Inc.'s AOL?) Plus, there’s that other bit of gunpowder Yahoo will be keeping dry until next Tuesday…

Yahoo Inc. moved closer to outsourcing its search advertising to Google Inc. after an initial test of the system yielded what the two firms deemed positive results, people familiar with the matter said.

A partnership could give Yahoo some needed leverage as it tries to ward off an unwelcome $42 billion bid from Microsoft Corp. Some view the potential pact as mere gamesmanship, particularly in light of antitrust concerns that a Google-Yahoo linkup would likely raise.

A search-ad deal could complicate Microsoft's efforts but is unlikely to derail its plan. Yahoo could simply pull out of the partnership should it agree to be taken over by Microsoft, people familiar with the matter say.

Still, a Yahoo partnership with Google is now increasingly likely, the people said. Yahoo and Google said last week they would undertake the preliminary test in order to evaluate the potential of a broader search-ad outsourcing arrangement.

Such a deal could increase Yahoo's cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney. The reason is that Google's system generates significantly more revenue for each search query than Yahoo's does.

The overlap between Google and Yahoo could make it hard to get a deal past regulators, analysts say. But the two are exploring ways to address potential regulatory problems, people familiar with their discussions say. Possibilities include limiting the partnership to specific groups of search queries or regions, for example.

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