The epic battle for control of Yahoo ended in a truce tonight.

Founder Jerry Yang and activist investor Carl Icahn have been fighting a bitter public war since the search engine's controversial decision not to accept a takeover from Microsoft.

Icahn wanted to kick Yang out and put his own men into the boardroom. He would then have pushed Yahoo into the arms of Microsoft. Yang wanted Icahn to go away and pick on somebody else, leaving Yahoo to retain its independence.

The two sides agreed tonight that Icahn and two of his nominees could join the board. Yang will remain in his job as chief executive. Analysts said the deal marked a victory for Yang. Icahn had failed to win over enough shareholders to get rid of the billionaire Yang. Shareholders including Legg Mason Capital Management late on Friday came out against the 72-year-old corporate raider.

"Icahn just didn't have the vote," said Sanford C Bernstein analyst Jeff Lindsay. "The large institutional shareholders were more in favour of keeping the current management structure."

But that does not mean the current management is popular. Investors are extremely disillusioned at the collapse in Yahoo's share price in recent years and the way in which it has been eclipsed by Google. RBC Capital Markets analyst Ross Sandler said: "Yahoo's current management is much better suited for Yahoo shareholders throughout this transition period. It's not like a vote of confidence, it's just they're the right people to get us through the disaster that we're in."

Despite Icahn's new position on the board, analysts said the compromise meant a Microsoft tie-up was now all but impossible.

Icahn's campaign had emboldened the software giant to keep pursuing a deal with Yahoo. Only 10 days ago, Yang rejected its latest offer to buy Yahoo's search business.