The agreement among environmentalists, state government and the timber industry also lays the groundwork for the state Department of Natural Resources to develop a new 10-year plan for logging state lands in Western Washington.

Officials on all sides of the issue praised the settlement, which would end a lawsuit that began in October 2004.

"It was a far better deal to settle the case than to fight it for years in court," said Bob Dick of the industry's American Forest Resource Council.

Settlement talks began late last year after a King County Superior Court judge rejected the state's logging plan for the next decade, saying officials did not adequately consider the environmental impacts.

Tuesday's settlement revises the earlier blueprint by setting special logging rules for thousands of acres of habitat favored by the northern spotted owl and other animals.

The federal government considers the owl a threatened species, and federal studies show its population in Washington state has declined more than 7 percent per year for about 15 years, said Eric Harlow, a scientist with the Washington Forest Law Center.

Under the settlement, 42,000 acres of high-quality owl habitat would be virtually off-limits to logging. Light thinning with an eye toward habitat improvement would be allowed on another 45,000 acres of lower-quality habitat, department spokeswoman Patty Henson said.

"That's significant," said Becky Kelley of the Washington Environmental Council, one of the lawsuit's plaintiffs. "We're not just tweaking around the edges here. This is a pretty big deal."

Public Lands Commissioner Doug Sutherland, who heads the department and is chairman of the natural resources board, said the settlement "restructures our approach, recognizing that there is a significant concern about spotted owls."

The settlement also will allow state officials to draft a new 10-year logging plan. Its highlight will be a new projected average yearly harvest for the 1.4 million acres of state trust lands west of the Cascade Range.

The logging plan rejected last year called for an average harvest of 597 million board feet a year - an increase of about 30 percent.

Officials were unsure Tuesday how much the harvest target would change under the settlement, but they said setting aside the owl habitat likely won't have a major effect.

Negotiations with federal officials about how to log near streams also will affect the final harvest targets, officials said.

The Department of Natural Resources manages 2.1 million acres of forest trust land statewide, selling logging rights to help pay for school construction and local county government needs like libraries, hospitals and fire districts.