Microsoft and the U.S. Justice Department appear close to a tentative agreement to settle the three-year-old anti-trust case against the software giant. Negotiators are trying to come to terms before they are scheduled to return to court Friday.

A crucial issue is whether the 18 states that joined in Microsoft's prosecution will agree to a settlement.

Throughout the litigation, the states have taken a harder line against the company than the federal government, seeking tougher restraints and scuttling one proposed settlement because they felt enforcement mechanisms were not strong enough.

The fact that the states have been participating in the last three weeks of settlement talks is seen as a hopeful sign.

The Microsoft antitrust trial, which began three years ago, resulted in a lower court finding that the company was a monopoly, stifling competition and hurting consumers.

Presiding Judge Penfield Jackson ordered Microsoft broken up into two companies. The company appealed and a higher court, while agreeing that Miscrosoft was a monopoly, threw out the order to break up the company.

Microsoft failed to convince the U.S. Supreme Court to hear the case, leaving the U.S. government and Microsoft to work out a settlement.

If there is no agreement by Friday, both sides face a hearing in March on ways to prevent Microsoft from violating antitrust laws in the future.