It has said it might supply hybrids to other auto makers as part of its goal to produce 300,000 of the eco-friendly vehicles a year by the middle of the decade.

Under the agreement, Toyota's patents on gasoline-electric hybrid engine system control and emission purification have been licensed for use in Ford's own hybrid system, which is under development.

"Toyota's move with Ford today puts them one step closer towards achieving critical mass for their hybrid technology as well as enhanced prospects for meaningful profitability for the technology," said Kurt Sanger, an auto analyst at ING.

Toyota made its name as world leader in hybrid technology in 1997 when it launched the Prius sedan, the first mass-produced vehicle to combine a battery-powered motor and a gasoline engine, significantly reducing emissions.

The auto giant went on to sign a much broader hybrid system licensing agreement with domestic rival Nissan Motor Co (7201.T: Quote, Profile, Research) in 2002.

Honda Motor Co (7267.T: Quote, Profile, Research) is the only other auto maker to mass-market hybrid vehicles, and Ford is the only U.S. auto maker with plans to launch a true hybrid this year - the Escape sports utility vehicle.

Ford said its hybrid system would feature more than 100 unique patents.

Purists have long questioned the U.S. auto maker's hybrid engine prowess after Ford reached an agreement in 2001 with Aisin AW, a Toyota-affiliated car parts maker, to supply Ford with key components for the Escape hybrid, which was first planned for 2003.

Toyota plans to roll out at least two new gasoline-engine hybrids in the U.S. market this year, including the world's first luxury hybrid, the RX400h sports utility vehicle. It is also considering a hybrid version of a new pickup truck. Toyota has sold more than 200,000 hybrid vehicles to date and says its hybrids are profitable. Honda says it barely makes a profit while Ford concedes the Escape will sell at a loss.

Toyota's share price ended up 0.51 percent at 3,950 yen, yesterday, outperforming a 0.25 percent rise in the benchmark Nikkei average .

U.S. automakers, notably General Motors Corp (GM.N: Quote, Profile, Research) , have been vocal in questioning the merits of hybrid cars.