Microsoft Corp. (MSFT) and Novell Inc. (NOVL) plan to enter into an agreement that would allow open-source Linux software to work with Microsoft's Windows software, a source close to the situation said on Thursday.

The agreement marks a change of course for Microsoft, which has spent years trying to defeat open-source software. The growing popularity of Linux servers has increased Microsoft's customer's needs for the two technologies to work together.

The source said on condition of anonymity that Microsoft planned to announce the collaboration on Thursday at a news conference attended by Microsoft Chief Executive Steve Ballmer and Novell CEO Ron Hovsepian.

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Unlike proprietary software, open-source software lets developers share code and add functions. Users pay for custom features, maintenance and technical support. Linux is the most popular variant of open-source software.

An earlier report in the online Wall Street Journal that Microsoft would support Novell's Linux product sent Novell shares up 19 percent, while open-source rival Red Hat Inc. (RHAT) shares fell 2 percent.

"Linux has grown up," said Katherine Egbert, an analyst with Jefferies & Co. who covers Red Hat and Novell. "By jumping into Linux providing support and technology that makes Linux work on Windows and vice versa, that shows that Linux is a mainstream market."

Novell and Microsoft plan to work together to develop technologies to allow users to run both Windows and SUSE Linux, a version of the operating system sold by Novell, the source said.

The two companies, once bitter rivals, plan to also provide patent coverage for each other's customers for their respective products, the source said.

More than a decade ago, Novell assembled the pieces of a full-scale Microsoft competitor by buying database software from Borland and WordPerfect, an alternative to Microsoft Word.

It bought rights to a rival to Microsoft's Disk Operating System (DOS) and a version of Unix, a predecessor to Linux, seeking to fuse them with Novell's own operating system.

But the strategy failed amid surging demand for Microsoft's Windows operating system, leading Novell to file an antitrust lawsuit against Microsoft. Two years ago Microsoft paid $536 million to Novell to settle part of those claims.

Shares of Novell rose 17.55 percent, or $1.03, to $6.90, while Red Hat shares fell 2 percent, or 33 cents, to $16.16 in Thursday afternoon Nasdaq trade. Microsoft shares fell 7 cents to $26.74.