Apple has unveiled what it calls a "major update" to the operating system that drives the iPhone and iPod Touch.

The new functions include cut, copy and paste, long demanded byiPhone users, picture messaging and an in-phone search feature, but notFlash video.

Apple's Scott Forstall demonstrates the iPhone's cut and paste feature

"While things like copy and paste and multi-media messaging (MMS)are things they have needed to do for a while, other features will inessence stop consumers buying other smartphones and raise the amount ofmoney people spend on the iPhone, " he said.

Analyst Gene Munster from Piper Jaffray agreed that the upgrade was a major step forward.

"We believe Apple addressed key issues that were leading someconsumers to competing devices for multimedia messaging and enterpriseemail."

Some of the other main features Apple highlighted for consumers include a voice memo and stereo Bluetooth.

A new search tool called Spotlight to allow users to search files and applications on the iPhone or iPod Touch.

"Profound and amazing"

Alongside the consumer upgrades Apple also unveiled its SDK(software developer kit) aimed at helping engineers write applicationsfor the devices.

Apple admitted that the success of its App Store, where userscan download from a choice of 25,000 paid-for and free applications,had exceeded their expectations.

"Our goal was to make developers successful," said Scott Forstall, head of Apple's iPhone software development.

Developers will now be able to use the iPhone's mappingcapability in their own applications, as well as take advantage of"push" technology to alert users of messaging or alert software.

Users can also now take advantage of enhanced peer-to-peercapabilities for games and other programmes that communicatewirelessly.

The new software will also allow developers to sellsubscription-based software products, opening up the prospect of usersbeing asked to pay for different levels of a game, to purchaseadditional content or to buy virtual items.

Previously, all purchases on the iPhone or iPod Touch werering-fenced within either the App Store or Apple's mobile version ofiTunes.

Industry analysts said the new move would be an important revenue-generator for Apple and developers.

"This in-app payment capability is big news and provides a wayfor people to pay for content again," said Mike McGuire of Gartner.

"It will be interesting to see how the print media reacts offering subscription services for magazines, newspapers and e-books.

"Game developers will cash in and I am very excited to see how music services leverage this new function," he said.

Hardware

The operating system upgrade, the third for the iPhone, will be available from the summer and free to all iPhone users.

Industry watchers are speculating that a new iPhone will also be released around the same time as the software upgrade.

"It wouldn't surprise me to see some new hardware come thesummer," said Van Baker, of Gartner. He noted that Apple is facingincreasing competition from other smartphones.

Gartner recently put Apple's share of the worldwide market at10.7%, compared to Nokia at over 40% and Research in Motion, whichmakes the Blackberry, at under 20%.

"Apple can't continue to go with a point product and expect toget the kind of revenue it needs without some new offering. A good timeto do that would be when they release 3.0," said Mr Baker.