Update: By now, surely many of you have seen the Wall Street Journal report, or parallel coverage, that Google and Yahoo are hedging their bets on their proposed search deal to make it more palatable (and less lawsuit-friendly) for the U.S. Justice Department.

This deal, in which Google would run search ads with Yahoo results to provide revenue for both companies, was supposed to be in effect since October. In the last few weeks, we've been told over and over that Googlehoo and the DOJ are hashing out concessions.

Original terms called for Yahoo to choose how many Google search ads it could display and for the deal to last as long as a decade if the parties consented.

Now the WSJ has said (subscribers only) the parties are talking about truncating the deal's life span from 10 to two years and putting a cap on the revenue Yahoo can generate from the deal to 25 percent of Yahoo's search revenue. The new plan also specifies that "Google advertisers can opt out of having their ads displayed on Yahoo sites."

Limiting the deal's lifetime is probably a headache for Google and Yahoo, as they laid out the deal the best way they believed it would work for them. Capping the revenue for Yahoo should be a deal breaker in my opinion. Frankly, I can't believe Google and Yahoo are even considering it.

The idea is for Yahoo to profit as much as possible with Google's help, but if the DOJ is forcing the cap, it must really believe Google will eventually subsume Yahoo if Yahoo can run Google ads all day, every day with impunity.

Douglas McIntyre, of BloggingStocks, notes the reason for the cap could be that the DOJ is concerned the companies will raise ad rates. Google and Yahoo have both adamantly denied this, hiding behind the ad auction model.

McIntyre is dead on when he writes, "[Yahoo] needs the supplemental income from Google to impress investors with expanding revenue." Capping the deal isn't going to help Yahoo get there.

Meanwhile, Erick Schonfeld at TechCrunch wonders whether Google and Yahoo are using a stalling tactic until a new presidential administration and new Justice Department officials come into office. I doubt that.

The current DOJ is setting the tone for how such potentially monopolistic search ad deals should be addressed. I wouldn't expect those who follow to do anything but pick up that torch and run with it to make a statement: Do not pass go and do not collect $200.

*Reuters reports that the deal is a "desperate gambit."

It's not desperate for Google, which doesn't need to do this deal, but Sanford Bernstein analyst Jeffrey Lindasy is right when he says it could bog Yahoo down further in the mire, freezing it from even pulling off a deal with AOL.

If this deal does get stalled until 2009 because of a showdown with the DOJ, and Yahoo cannot shore up its core businesses, its mass employee defection and embarrassing stock freefall, it will be dead meat.

Does anyone disagree?