NEW YORK — Bilbo lives!

After publicly feuding for more than a year, “Lord of the Rings” director Peter Jackson and New Line Cinema have reached agreement to make J.R.R. Tolkien’s “The Hobbit,” a planned two-film prequel to the blockbuster trilogy.

Jackson, who directed “Rings,” will serve as executive producer for two “Hobbit” pictures. They will tell the story of how the young hobbit Bilbo Baggins originally came to possess the nefarious One Ring that Frodo, his adopted heir, needed three films to dispose of.

A director for the films has yet to be named. Production is tentatively set to begin in 2009 with a release planned for 2010, and the sequel following in 2011.

Relations between Jackson and New Line soured after “Rings” despite a collective worldwide box office gross of nearly $3 billion. Jackson shepherded Tolkien’s Middle-Earth saga to a combined 17 Academy Awards, including best picture for 2003’s “The Lord of the Rings: The Return of the King.”

“I’m very pleased that we’ve been able to put our differences behind us, so that we may begin a new chapter with our old friends at New Line,” Jackson said in a statement. “We are delighted to continue our journey through Middle Earth.”

Late last year, acrimony between the 46-year-old Jackson and New Line became very public, with the studio announcing it would move forward with “The Hobbit” without him. Jackson sued New Line over the amount he was paid for “Lord of the Rings: The Fellowship of the Ring,” the first installment of the trilogy.

Jackson’s suit, the two sides announced Tuesday, has been settled. The terms of the settlement weren’t announced, though New Line co-chairman and co-CEO Bob Shaye cheerfully said: “One of the key terms was we all shake hands with each other.”

Two “Hobbit” films are scheduled to be shot simultaneously, similar to how the three “Lord of the Rings” films were made. The production schedule is subject to how long the writers strike lasts; there isn’t currently a script for either “Hobbit” film, and producers will be unable to approach writers until the strike is over.