SAN FRANCISCO (Business 2.0 Magazine) - Late last year, when Google refused point-blank to supply the government with the search information the Feds had subpoenaed, only two outcomes seemed likely.

In one, the Justice Department would walk away without the million randomly selected Web sites indexed by Google (Research) and the million randomly selected search queries typed in by users that government lawyers wanted.

The outcome of the dispute over search results between Google and the Justice Department is likely to have a big impact on the search giant's future.

More from Business 2.0 Live chat: your new online salesperson The hijack-proof truck Server farm goes solar Fastest Growing Tech Companies Current Issue Subscribe to Fortune

In the other, Google would be forced to turn the records over -- to the chagrin of many of its users, who don't want their search histories turned over to the government, especially not by a company that claims it doesn't want to "be evil."

With a motto like that, it's not surprising that Google is held to a higher standard than Yahoo (Research) and Microsoft, both of which immediately complied with the government's search subpoenas.

The Justice Department request came as part of a bid to help defend an embattled 1998 anti-pornography law by demonstrating just how much pornography is available on the Internet, and how many of us actively search for it.

But now U.S. District Court Judge James Ware appears to be presiding over a third outcome: a compromise that saves face on both sides.

Already, the Justice Department has conceded much ground, reducing its request to 50,000 indexed Web sites and 5,000 search results.

And although Ware has said he will be requiring Google to turn over some information, it's possible that he will only give the government access to one thing and not the other -- the index of Web sites, but not the search results.

The judge declared himself sensitive to Google's need to keep its customers happy, and worried about a "perception by the public that this is subject to government scrutiny" every time they do a Google search. He worried that Google would be inundated with similar research requests from "hundreds of university professors."

Ware also repeatedly referred to one of Google's strongest arguments: that this kind of information is already available on other search engines like Alexa, which has 4 billion Web pages in its index. The government responded that an Alexa search wouldn't prove its point as well as a Google one.

If the judge does allow Google to hang on to its search queries, that would allow the company to declare victory and tell its users their privacy rights were fought for and won.

The idea that you can trust Google with your personal information is looking a bit battered these days, in the wake of privacy concerns over Gmail -- which searches the text of your e-mail in order to offer you what it thinks are relevant ads on the same screen -- and Google's concession on its Chinese site that allows that country's government to censor search results.

This would be a horrible time for further bad privacy publicity.

Google, after all, desperately wants you to be comfortable enough to tell it your personal information.

Gmail, Google Groups, a Froogle shopping list, Google Answers, a home page personalized for you – all these Google services require you to sign up for a Google account, and it's likely that they're just the beginning of Google's personalized offerings.

The more Google accounts there are, and the more information we're offering in those accounts, the more the company can precisely target us with advertising -- its bread and butter.

Google's continued meteoric growth and dazzling diversity of useful free services, not to mention its ad revenue, could well depend on just how sensitive Judge Ware is to public perception of government scrutiny.

----------------------

Business 2.0 imagines four futures for Google. More here.

Plus: Five ways for Google to grow up. Full story.