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The Department said it was abandoning the effort at a company break-up in order to obtain "prompt, effective and certain relief for consumers."
The announcement came after the District Court ordered the Antitrust Division and Microsoft to produce a joint status report outlining proposals for further proceedings in the case.
The District Court had earlier ruled that Microsoft had engaged in exclusionary conduct intended to maintain its monopoly in the market for PC operating systems. The Court of Appeals upheld this decision in June but reversed the District Court's ruling that Microsoft had unlawfully tied its Web browser to its operating system.
The Justice Department said it would not pursue the question of whether Microsoft was illegally tying its products, arguing that doing so "would only prolong proceedings and delay the imposition of relief that would benefit consumers."
The break-up of the company was first ordered more than a year ago by trial judge Thomas Penfield Jackson, but Jackson has since been removed from the case and his conduct, including comments to reporters, were labelled inappropriate by the appeals court.
Kevin McConnell, senior equity analyst at Bloxham Stockbrokers, said the Department of Justice announcement on Thursday was not a surprise.
"It was pretty much expected that the Bush administration would be more friendly to the Microsoft case," he said. "There was very much a change in the way the case was handled when the administration changed."
McConnell also reckoned that the European Union, which has its own antitrust investigation into Microsoft, will not pursue Microsoft as vigorously following the decision by the US Department of Justice.
"I wouldn't say Microsoft is out of the woods in Europe, but it's certainly in a better position than it would have been," he said. "It probably looks better for them in Europe now that this decision is public, but don't expect Europe to bend over right away."
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