Google has agreed to create a 60m euro ($82m; £52m) fund to help French media organisations improve their internet operations.
It follows two months of negotiations after local news sites had demanded payment for the privilege of letting the search giant display their links.
The French government had threatened to tax the revenue Google made from posting ads alongside the results.
The US firm had retorted it might stop indexing French papers' articles.
In addition to the creating the Digital Publishing Innovation Fund, Google has agreed to give French media access to its advertising platforms at a reduced cost.
The compromise allows it to avoid paying an ongoing licensing fee.
"France is proud to have reached this agreement with Google, the first of its kind in the world," the French president's office said on Twitter.
One analyst told the BBC that the President's comment was telling.
"It appears Google have opened the door to other countries' newspapers doing the same thing," said Ian Maude, head of internet at Enders Analysis.
"This sets a precedent which other publishers may pursue in their own negotiations."
After the news was announced, Eric Schmidt, Google's chairman, wrote on his company's blog: "These agreements show that through business and technology partnerships we can help stimulate digital innovation for the benefit of consumers, our partners and the wider web."
The search giant has also made efforts to resolve a separate European dispute.
It has filed proposals with the European Commission stating how it intends to deal with complaints made by Microsoft and more than a dozen other companies that it had broken competition rules.
The European regulator will now consider Google's proposals, which have not been disclosed.
If it rejects them and finds the firm has broken its rules, it has the power to fine the firm up to 10% of its global turnover which could amount to more than $4bn (£2.5bn).
- 29 January 2013
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