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LONDON -- The resumption of America's Cup hostilities on the water -- rather than in the courtroom -- may be one step closer after Team New Zealand agreed to drop its lawsuit against Alinghi of Switzerland, the holder of the trophy.

The Swiss team owned by billionaire Ernesto Bertarelli had allegedly threatened to write the rules for the next cup in 2010 in such a way as to exclude the Kiwi challenger unless it dropped its lawsuit.

But Alinghi skipper Brad Butterworth and Team New Zealand's managing director Grant Dalton reached an agreement Monday night and the lawsuit has been withdrawn, Dalton told The Associated Press on Wednesday.

Dalton said that Team New Zealand withdrew its action in part to ensure Alinghi would take part in the Pacific Series in Auckland in February.

Team New Zealand had been seeking damages of as much as $60 million from Alinghi after the 2009 America's Cup was delayed by an earlier lawsuit filed by BMW Oracle Racing, owned by another billionaire, American Larry Ellison.

Team New Zealand also argued that the protocols for what would be the 33rd edition of the cup were written to favor Alinghi.

When the 2009 Cup was delayed, Team New Zealand had to lay off employees, Dalton said. When Alinghi announced last week that it hopes to relaunch the Cup in 2010, "some of the sting went out of our legitimate claim, because we can fund a team now," Dalton said by phone from Auckland.

"It is good news that Grant Dalton and Team New Zealand [TNZ] have at last stopped legal proceedings. It is great that they have seen that the legal route leads nowhere and are returning to the sport with all the other teams," Alinghi said in a statement. "We look forward to the Competitor Meetings in Geneva and to further progressing as a group that includes the Defender and the challengers towards getting the competition back on the water."

The agreement also clears the way for Alinghi to face Dalton's team in New Zealand waters at the Vuitton Pacific Series next February. Entries for that event close Friday.

"We want the regatta down here to be a real success, and having Alinghi at that certainly helps that," Dalton said.

Dalton said the regatta will give New Zealanders the opportunity to see Kiwi sailing stars Russell Coutts and Butterworth competing against each other in their home waters. Coutts and Butterworth led Team New Zealand to America's Cup victories in 1995 and 2000 before jumping ship to Alinghi and helping the Swiss-backed team win the trophy in 2003.

Coutts was fired by Bertarelli after the 2003 regatta and sat out the 2007 Cup. He is now with BMW Oracle Racing.

"That was quite a big draw card for us," Dalton said. "The public of New Zealand, who are reasonably well-educated in the Cup, certainly more than the rest of the world, they have no idea what's going on. They don't understand and they're tired of it. So all of things together felt like the right opportunity to get out and get on with it."

However, the ultimate stumbling block remains the lawsuit filed by BMW Oracle Racing.

International sport's oldest competition has been stuck in the courts since Alinghi beat Emirates Team New Zealand in one of the most thrilling finals in the Cup's 157-year history.

Alinghi's yacht club, the Societe Nautique de Geneve (SNG), initially recognized Spain's Club Nautico Espanol de Vela (CNEV) as the challenger, but in March, a New York court declared its challenge invalid and declared that BMW Oracle's Golden Gate Yacht Club should be the challenger.

But after an appeal by SNG, that decision was set aside by the New York Supreme Court's Appellate Division. However, Golden Gate Yacht Club quickly filed a last-chance appeal with the New York State Court of Appeals in Albany.

"We feel that there is an opportunity to move ahead with the competition," Butterworth said last week. "We want to get this competition going and get the entered challengers to participate in a constructive process."

BMW Oracle said it is sticking to the courts.

"We remain very receptive to engaging in direct discussions about the future of the America's Cup with Alinghi, and including all the other competitors, but without Alinghi's unreasonable preconditions," BMW Oracle said in a recent statement.

Ellison and Bertarelli had been scheduled to meet recently in Trieste, Italy, but the meeting did not happen.

BMW Oracle Racing made a proposal to Alinghi last week to "modernize" the Cup, with several ideas including cutting costs, allowing the defender to race the challengers and putting the America's Cup back on the water as early as 2010.

Copyright 2008 by The Associated Press