Google and Walla! are entering a strategic alliance that could generate millions of shekels a year in revenues for the Israeli Internet portal.

The two Israeli Internet companies are to cooperate on "adword" technology - search-driven ads.

Google Israel recently deposed Walla! from its position as the leading Internet company in Israel. Google Israel's annualized revenues ran to $40 million as of the end of the second quarter, compared to Walla!'s $26 million.

Walla! shares rose 9.1% on Tuesday on turnover of NIS 4.6 million, regaining their losses this year. However, the benchmark broad-market index gained 20% from the year's start.

Walla stock was brought low as top executives, led by CEO Ilan Israely, quit. He resigned resigned in 2006 and was replaced by Ilan Yehoshua.

The firm also reported weak financial results for the first quarter of 2007.

Walla!, which is controlled by Bezeq International and the Haaretz group, netted just NIS 1.5 million in the first quarter, a 70% drop compared to the same period in 2006.

Its weak results were due primarily to eroding profits from advertising during the transition period from financed links to a focused advertising system.

This type of advertising is a textual system that presents only advertisements relevant to a search, similar to Google's Adwords system.

Yehoshua estimated at the end of the first quarter of 2007 that the company's revenue mix would improve by the second quarter, and that the new advertising system would be one of the company's most important growth drivers.

Spokespeople for Google Israel and Walla declined to comment.