The new Treo 700 will be offered through Verizon Wireless, according to market analyst Rob Enderle and other industry sources.

"In terms of the level of importance, this would be - in this space - the same thing as Apple announcing they were going to be using Intel processors," Enderle said.

The three companies have scheduled a press conference for Monday. Spokesmen for Palm, Verizon Wireless and Microsoft declined to comment.

The new device will run on Windows Mobile 5.0, the latest version of the operating system that has been challenging Palm OS for years.

Though the Palm OS dominated the industry, its lead has steadily lost ground to Microsoft's offering, which is based on that company's ubiquitous Windows desktop PC software and thus familiar to more people.

Users, especially in the corporate world, have been lured to Windows-based handhelds because they can run several programs at once and offer better support for documents created on Windows PCs and for Microsoft e-mail.

As well, the Palm operating system that Treos have until now run exclusively have more limited multitasking abilities.

In the third quarter of last year, devices running Microsoft's software outsold those with Palm OS for the first time, according to the research firm Gartner Inc.

"No question that Microsoft has made significant inroads compared to where they were just a couple of years ago - which was no where," said Charles Golvin, analyst for Forrester Research.

Rumors have circulated for months that Palm was ready to embrace a Windows platform. Palm spent years trying to fend off Microsoft's forays into the sector.

"Microsoft in the long term wants the kind of strong position in mobile devices that it has in PCs," Golvin said. "They would like to have 90-percent market share on PDAs, smart phones or cell phones.

Besides building handheld devices, Palm once produced its own software - Microsoft's domain.

Two years ago, Palm, which was known as Palm Computing, spun off its software division to free it up to cut deals with handheld makers who may be competing with the hardware side of Palm. But in the meantime, such companies as Sony Corp. drop discontinued handhelds based on the Palm OS.

Before Japanese software company Access Co. agreed earlier this month to pay $324 million for it, PalmSource struggled as a standalone business.

As PalmSource's troubles mounted, analysts began wondering when Palm Inc. might seek a more stable company to provide its operating system.

"Microsoft understands the back end and Palm understands the front end, and the two of them - if they can work together - they can do some incredible things," Enderle said.