New Mexico unexpectedly broke with the federal government and 17 other states Thursday, and resolved antitrust charges against Microsoft. The deal provided momentum for additional settlements in the historic four-year court case against the software giant.

Microsoft will pay the state's legal costs. New Mexico will share in any future result in the case, which is still in federal court.

The development came one day after Microsoft's announcement that it would change the way it licenses its Windows operating system to computer makers. The changes address concerns raised by the courts about anticompetitive practices.

"I was encouraged that Microsoft made some concessions yesterday that was a very good first step," Madrid said in an interview with The Associated Press.

Company spokesman Vivek Varma said Microsoft "was pleased to have this matter resolved." Varma added that Microsoft was committed to working with other government officials to resolve the remaining issues in the case.

Madrid said Microsoft has agreed to pay the state's legal costs from the case. Any penalties and remedies imposed in the continuing federal antitrust case will be applied to New Mexico, she said.

"My job is to do what I think best serves the interests of New Mexico consumers and businesses," Madrid said in a statement.

"An important element of this settlement between New Mexico and Microsoft is that my state will receive the benefit of any and all remedies imposed upon Microsoft in the resolution of this lawsuit with any and all of the remaining litigating states and the U.S. Department of Justice," she said.

Two weeks ago, a federal appeals court ruled that Microsoft had operated as an illegal monopoly and hurt competitors. But the court reversed the trial judge's order breaking up the company, and sent the case back to a different lower court judge to decide a new penalty.

Shortly after the ruling, both sides hinted a settlement was possible.

In addition to what she saw as progress in Microsoft's announcement Wednesday, Madrid said she had reservations about splitting up the company.

"I've been thinking about this for some time. I haven't always been convinced that structural relief was appropriate, I think it's a difficult remedy and the (appeals) court thought so, too," she said.

The cost to the state also was a factor in her decision.

"I don't see the upside for having my state expending resources in a case of this magnitude," she said. New Mexico has devoted about $100,000 to the four-year effort.

In return for New Mexico ending its prosecution, Microsoft agreed to cover the cost of the state's attorneys fees. Also, the state will share in whatever final remedies may come at the case's conclusion.

The change announced by Microsoft affects its Windows licensing policies, allowing computer manufacturers to remove the icons for its Internet Explorer browser. Microsoft also said it would let users remove the software completely in the upcoming Windows XP software.

But two state attorneys general who have taken a leading role in the suit -- Tom Miller of Iowa and Connecticut's Richard Blumenthal -- said the announcement meant little because Microsoft already won the battle for Internet browser dominance. The change, they said, came too late to matter for consumers.