Company sources have told the Wall Street Journal that a trial of the new system, which has been running since last week, has proved a success.
Under the proposed deal, web users who use Yahoo!'s search engine will be served with contextualised Google ads alongside their search results.
The tie-up is seen by analysts as an attempt to stave off an unwelcome takeover bid for Yahoo! by Microsoft.
Bill Gates' software giant approached the Yahoo! board at the end of January with a $44.6bn (£22.6bn) offer for the 14-year-old web firm.
The $31-per-share offer was a significant premium on Yahoo!'s $18 share price on the day before the news broke.
According to the Silicon Alley Insider blog, Yahoo! could see its operating profits rise by as much as $500m (£250m) a year if the search advertising deal was approved.
Between them, Google and Yahoo! control around four-fifths of the search market in the US. Microsoft has argued that the link-up would be anti-competitive.
Google, meanwhile, is due to announce its first-quarter results this afternoon. The release will put an end to two weeks of speculation on Wall Street about Google's vulnerability in the uncertain financial climate.
Data released by ComScore at the end of March suggested that the number of US web users clicking on Google ads was slowing down. Google has refused to comment on the figures.
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