Ms Alexander believes there will be a huge jobs boost

The company will look at the best way of designing, implementing and funding the tram line as well as other transport improvements.

The executive has already pledged �6.5m towards the cost of establishing another tram line in the north of Edinburgh.

Ms Alexander said the latest commitment came after months of negotiations with the business community and was aimed at giving the city "the sort of public transport system it deserves".

She said: "What we are doing is establishing a win-win situation for the city, for the executive and for commuters.

"In the past we have struggled sometimes to get the right people with the right powers in the same room at the same time.

Commuters could have a new transport choice

"All of that has started to change and in years to come I hope that what we have started to initiate today will be seen as a milestone in getting Edinburgh moving again."

The minister said that the new measures could see between 20,000 and 100,000 jobs being created in the area.

Ms Alexander added: "The way we have to start to think about the west of Edinburgh is not in competition with the north of the city, but in competition with Milan or Munich as a leading business location."

Full details on how the trams will be developed are expected by 2005, by which time a number of other congestion-easing projects should be up and running.

Congestion charging in the city is also set to be introduced by then.

The authorities are keen to ease congestion

It is hoped the new tram line will be introduced within the next 10-15 years, but Ms Alexander refused to be drawn on the route it will take and whether it would extend to the airport.

The private company being set up to look at the project will be called the Edinburgh New Transport Initiative Company (Entico) and is the first body of its kind in the UK.

Entico chairman Ewan Brown, who is also chairman of Lloyds TSB, said: "I would hope that Entico will turn out to be an excellent example of what can be achieved by bringing some private sector skills alongside the strategic developments which the council wish to put in place."