Microsoft Corporation and the U.S. Department of Justice (DOJ) have settled their dispute over the bundling of Internet Explorer with Windows 95. The two sides announced on Thursday morning that Microsoft will comply more satisfactorily with Judge Jackson's injunction and not force OEMs to bundle IE with Windows.

In what is viewed as a significant victory for the DOJ, Microsoft is now offering OEMs two choices: a version of Windows with Internet Explorer 4.0, or a version of Windows without it. This decision also affects OSR 2.5 (an upcoming version of Windows 95) and Windows 98, which is due later this year. Contrary to prior plans, Microsoft will now offer a version of OSR 2.5 that does not include Internet Explorer 4.0 or the Active Desktop.

"Today's decision is a victory for consumers and innovators," said Joel Klein, the head of the DOJ's antitrust division. "Competitors and innovators should know that their products can compete on their own merits and not be wiped out by Microsoft's use of monopoly power. That's what competition is all about in America."

Microsoft's senior VP for law and public affairs, Bill Neukom, said he was pleased with the agreement because it allows his company to move on to the appellate phase. The appeal is set for April 21. Microsoft says the court proceedings will have no effect on the release of Windows 98, which is due between April and June of this year