The discussions were initiated by Microsoft, which has Google, its new archrival, clearly in its sights. Microsoft is trying to focus its Internet operations on its developing Web search product rather than its Web portal and Internet access business, which it no longer sees as strategically important.

Microsoft offered to sell its MSN Internet portal and dial-up subscriber business both to America Online and to Yahoo, according to several people with knowledge of the talks.

While Yahoo considered and quickly rejected the idea, Time Warner, parent of America Online, expressed interest. Top executives at Time Warner and Microsoft held discussions on a variety of potential transactions as recently as three weeks ago. Those talks, however, are on hold as Microsoft considers its strategic position, people involved in the discussions said.

Will AOL/Time-Warner bite on this?