The companies both said they would dismiss any pending legal actions regarding the trademark.
The showdown between the Silicon Valley technology heavyweights erupted last month when Cisco sued Apple in San Francisco federal court claiming that Apple's use of the iPhone name constituted a "wilful and malicious" violation of a trademark that Cisco has owned since 2000.
Cisco's Linksys division has been using the trademark since last spring on a line of phones that make free long-distance calls over the Internet using a technology called Voice over Internet Protocol, or VoIP.
The lawsuit was filed a day after Steve Jobs, Apple's chief executive, unveiled his own company's iPhone, a multimedia device that operates over the mobile cellular network instead of the internet.
Apple initially called the lawsuit "silly" and argued that it was entitled to use the name because the phones operate over different networks and would not compete with each other.
Cisco maintained that in an era of "convergence" - where increasingly intelligent networks and devices can handle a variety of different types of voice, video, data and other transmissions - the two companies' phones could eventually take on different features and wind up competing head-to-head.
The result would be "confusion, mistake and deception among consumers", according to the lawsuit.
Negotiations between the companies broke down just hours before Jobs' dramatic unveiling of the product on January 9 in San Francisco.
|Cisco-owned Linksys has been using the|
iPhone trademark since last spring [AP]
The sticking point apparently was Cisco's demand that in order to use the iPhone name, Apple would have to open up its famously closed products to communicate with some of Cisco's offerings.
Neither company would discuss what future products might come from the collaboration.
Analysts said the deal could help both companies strengthen their positions in the increasingly fierce battle to deliver video and other applications through the network directly to consumers' homes.
Zeus Kerravala, a network infrastructure analyst with Yankee Group, said there are ample opportunities for the companies to dream up collaborative projects to win over consumers.
One possibility, he said, could be the creation of a Linksys device that users call inyo to record podcasts that are then automatically uploaded to iTunes, which would make the creation and dissemination of such content easier.
However, he cautioned that both companies need to be willing to share in order to make the partnership work.
Kerravala said: "If the two actually can work together, then the combination of the two is obviously more powerful than the two butting heads.
"There's no company out there that understands network service like Cisco. And you could argue no other company understands user experience like Apple."
The dispute highlights the shifting business strategies for both companies.
"There's no company out there that understands network service like Cisco and you could argue no other company understands user experience like Apple"
Zeus Kerravala, network infrastructure analyst, Yankee Group
Cisco, which is Silicon Valley's most richly valued company with a market capitalisation of $166 bn, makes most of its money by selling the routers and switches that direct data traffic over computer networks.
However, the California-based company is also making an aggressive push into the consumer market and towards products that help deliver content, such as cable set-top boxes, wireless broadband routers for the home, and equipment for playing digital music.
Apple is also expanding its business range from beyond primarily a Mac computer and software maker as it capitalises on the demand for digital music and the soaring popularity of its iTunes and iPod products.
Legal experts said Cisco's argument that the phones could eventually compete seemed like an unlikely scenario.
They added that the products and markets they serve are currently so dissimilar there is little likelihood of future trademark tangles.