Talks between Microsoft Corp. and Yahoo Inc. intensified Friday as the two sides explored the possibility of a last-ditch friendly deal with a sweetened Microsoft offer, according to people familiar with the matter.

Though the talks had intensified, a deal was not imminent and the people familiar with the matter said an agreement was not likely on Friday. The people cautioned that the talks could fail to produce an accord, as have previous attempts to reach a deal. Microsoft and Yahoo were Friday discussing a possible price in the mid-$30s range per share, the people said.

The two companies and their advisers had held informal discussions over the past week, but were stymied by a divide on the price Microsoft should pay to acquire Yahoo, said the people familiar with the matter. Microsoft had been weighing whether to abandon its bid or go hostile, and had promised to announce its decision this week.

The two sides reached at least a minor breakthrough after Microsoft had indicated it was willing to raise its offer, said people familiar with the matter. Some Yahoo directors and shareholders were also pushing to try to broker a compromise, one of the people said. Microsoft had been leaning toward taking its offer hostile as late as Thursday, people familiar with the matter said.

On Friday, the two sides were attempting to avert that prospect with discussions that might lead to a negotiated outcome, said the people familiar with the situation. Microsoft has wanted to avoid a hostile takeover battle, which could drag out and result in distraction and the loss of key Yahoo employees. A Microsoft spokesman declined to comment.

It was unclear whether Microsoft and Yahoo would be able to bridge a gap on the issue of price. Microsoft this past week indicated a willingness to raise its bid to as much as $33 a Yahoo share, according to people with knowledge of the situation. Major Yahoo shareholders have signaled they want a price in the range of $35 to $37 a share, these people said. Each dollar per share Microsoft raises the price represents a roughly $1.4 billion increase in the total value of the deal. Microsoft's original cash-and-stock offer was worth $29.39 a share as of 4 p.m. Nasdaq Market trading Friday.

Yahoo shares jumped $1.86, or 6.9%, to close at $28.67 in 4 p.m. Nasdaq Stock Market trading Friday on news of the revived Microsoft negotiations. Microsoft's shares lost 16 cents, or 0.54%, to $29.24.

Speaking to Microsoft employees at its Redmond, Wash., headquarters Thursday, Microsoft Chief Executive Steve Ballmer said he wouldn't pay "a dime above" what he thought Yahoo was worth. "I will go to what I think it's worth if that gets a deal done," Mr. Ballmer added, saying Microsoft would announce its decision "in relatively short order."

On April 24, Microsoft Chief Financial Officer Chris Liddell said Microsoft would make a statement on the deal this past week, after the passage of the April 26 deadline given by Microsoft for Yahoo to enter friendly talks or face a hostile takeover. But an announcement was delayed.

People familiar with the situation said that was at least partly attributable to Mr. Ballmer, following a regular pattern for the 28- year Microsoft veteran, who has led the company for eight years. The former salesman has a history of shifting his opinion suddenly and sometimes being easily swayed by new data or a new perspective that refutes his existing opinion, these people said.

In recent weeks, Mr. Ballmer has appeared to both be leaning towards launching a hostile bid for Yahoo and walking away, said people familiar with his thinking.

That Mr. Ballmer is being careful with his decision may have to do with the deal's scale. Buying Yahoo -- which would cost Microsoft in excess of $40 billion -- would be the largest acquisition in Microsoft's history and would come as the company is investing heavily in a broad range of new software programs and areas and faces a long- term threat from Google Inc.

"There have been a lot of somewhat unexpected twists and turns in this," said Benjamin Schachter, an Internet analyst with UBS Securities LLC, whose firm does business with Microsoft and Yahoo. Investors have had to assess how much of the outcome will be determined by the personalities of Mr. Ballmer and Yahoo CEO Jerry Yang, he said. In addition, he said, "It's the only Internet deal of this size that has ever really had the potential to be a hostile deal -- it's that uniqueness that's driving the volatility."

Despite the back-and-forth, many analysts and investors still say the two companies are moving toward an eventual deal. "As you get toward the final stages, the headlines and the negotiation tactics get more intense, but I don't think this is that out of the band of the normal," said Mark Mahaney, an Internet analyst at Citigroup Global Markets Inc.