Under Google's AdSense for Search programme, which the two firms arranged earlier this year, Yahoo will display search ads sold by Google and take a share of the revenue.
But the plan met with criticism, particularly from Microsoft which suggested that the deal would give Google an increased monopoly in the online advertising market.
Reports now claim that the advertising deal will be for two years, rather than 10, and that the money Yahoo generates from the arrangement will be capped at 25 per cent of its revenue.
The stricter deal terms should increase the probability of the Justice Department's sanctioning the agreement.
Yahoo has always maintained that its intention was to strengthen shareholder value. The initial agreement with Google was formed just as Microsoft's proposed acquisition of Yahoo fell through.
In separate news, Yahoo announced today that it is to close Yahoo Live, which is run by the firm's Brickhouse division.
"It is with great sadness that I share the news that Yahoo Live, a Brickhouse project in social broadcasting, will be going off the air on 3 December 2008," said Yahoo developer Keith Thornhill in a Yahoo Live Blog posting.
"Our mission on the Brickhouse team is to quickly develop product ideas that can add value to Yahoo as a whole. To do this effectively we constantly evaluate our early-stage products and sometimes have to make the hard decision to move on in order to continue exploring new territory and developing new products."
A separate blog posting shows that Yahoo intends to focus its efforts on a location monitoring application known as Fire Eagle.
Yahoo has a new Fire Eagle App Gallery, which will allow users to explore applications that work with Twitter, Nokia devices and Apple's iPhone.
Google and Yahoo propose new search deal
By Rosalie Marshall on Nov 5, 2008 6:14AM