Apple Computer, the struggling personal computer industry pioneer, yesterday announced a surprise alliance with Microsoft, its bitter rival. To cement their partnership, Microsoft took a small minority stake in Apple, for $150 million (£104 million). Apple employs 1,500 people at its European headquarters in Cork. Microsoft employs 900 people in Sandyford, County Dublin.

Mr Steve Jobs, who is leading an effort to resurrect Apple, the company he co-founded 23 years, said Microsoft and Apple should put aside their past differences.

Speaking before a crowd of Apple supporters at the MacWorld trade show in Boston, he said: "We have to let go of the notion that for Apple to win, Microsoft needs to lose."

He also announced that he would join Apple's board of directors, cementing his renewed ties with the company which he was forced out of in 1985. He has acted in the unofficial capacity of a "part-time adviser" to Apple's managers and board since December.

Apple also added three new board members, all with experience in the computer and software industry: Mr Larry Ellison, chairman and chief executive of Oracle, the world's largest database software company; Mr Bill Campbell, president and chief executive of Intuit, the leader in personal finance software; and Mr Jerry York, former chief financial officer of International Business Machines.

Three board members resigned, including Mr Mike Markkula, who provided the original financial backing for Apple and has sat on its board ever since. Mr Markkula has long been at odds with Mr Jobs.

The alliance with Microsoft took Apple investors by surprise. Microsoft, which dominates the personal computer market with its Windows software, is widely regarded as Apple's nemesis.

Microsoft will invest $150 million in Apple, buying shares at "slightly below the market value". The investment had been part of a package of collaborative agreements proposed by Mr Jobs, according to Microsoft.

These include Microsoft's agreement to continue to develop and ship office applications for the Apple Macintosh. In return, Apple will bundle Microsoft's internet browser software - Internet Explorer - in future Macintosh products.

The companies also reached a broad patent cross-licensing agreement. Microsoft said there were no other "material" financial elements in the alliance. However, Microsoft is expected to pay patent royalties to Apple.

Mr Bill Gates, Microsoft's chairman and chief executive, said: "In 1984, Steve Jobs and I stood together when Microsoft announced Microsoft Excel, an application that is widely credited with helping to define the potential of the Mac as a great applications platform."

"Today's announcements underscore our continued belief in the Mac as a platform for applications and leading-edge Internet technologies. Microsoft has millions of customers who rely on Macintosh technology and they can be assured that Microsoft products for the Mac will continue to be available."

Apple still lacks a chief executive, following the forced resignation last month of Mr Gil Amelio. Apple said a search was continuing. Mr Fred Anderson, Apple's chief finance officer, will be acting chief executive officer.

Talks between Apple and Microsoft were deadlocked until about four weeks ago, when Mr Jobs kick-started the discussions which culminated in Wednesday's deal, Mr Anderson said.

Microsoft said it hoped that its investment in Apple would also provide a good return.