(Reuters) -- Palm Inc has fired another volley at Apple Inc in their smartphone war, as the two rivals tussle over whether iTunes should be compatible with Palm's new Pre smartphone.

Palm, whose executive ranks include former Apple brass, released a software update for the Pre this week that allows it to sync again with Apple's iTunes media management software.

The move comes after Apple last week issued its own software update to close a loophole in iTunes that had allowed it to sync with the Pre. ITunes is designed to work with Apple's iPod and iPhone products.

Palm announced the software update in a blog post that mimicked Steve Jobs' signature catchphrase "Oh, and one more thing," which the Apple chief executive has often used to announce a brand new product.

"Oh, and one more thing: Palm webOS 1.1 re-enables Palm media sync. That's right -- you once again can have seamless access to your music, photos and videos from the current version of iTunes (8.2.1)," said Palm's blog posted late on Thursday.

Resource Library:

It was not immediately clear when Apple may issue another software patch to counter Palm's move. When asked for comment, an Apple spokesman said, "As we've said before, newer versions of Apple's iTunes software may no longer provide syncing functionality with unsupported digital media players.

Palm launched the Pre in June to good reviews, seeking to win a slice of the touch screen smartphone market now dominated by Apple's iPhone. Prior to the launch, Palm had touted that the Pre "synchronizes seamlessly with iTunes."

RBC Capital Markets analyst Mike Abramsky estimates Palm has sold 325,000 to 375,000 Pre phones so far, ahead of expectations. In comparison, Apple sold more than a million iPhone 3GS units in the first three days on the market.

While analysts and the Pre's carrier, Sprint Nextel Corp, have said it's too soon to know if the phone will be a real hit, it has already sparked a huge rally in Palm shares this year.

Avian Securities analyst Matthew Thornton said the war with Apple is generating plenty of drama, even though few Pre users bought their phone with the intention of syncing with iTunes.

"There's a lot of hype around it," he said, noting that some senior Palm personnel formerly worked at Apple, making the rivalry between the two companies seem that much sharper even if the dispute will likely have a limited economic impact.

Palm Chief Executive Jon Rubinstein had helped create the iPod, and senior vice president of product development Mike Bell also used to work at Apple.

Rubinstein was brought in as Palm's executive chairman when private equity firm Elevation Partners bought a stake in the company in 2007, and he was named CEO last month. Elevation's co-founders include tech investor Roger McNamee, former Apple Chief Financial Officer Fred Anderson and singer Bono.

Kaufman Bros analyst Shaw Wu called Palm's move a "modest negative" for the company.

"While we acknowledge this is a short-term fix, frankly, we would have preferred Palm respond in a more professional and mature fashion," he wrote in a research note. "We do not believe hacking third-party software to work with one's hardware is a viable long-term business model, especially for a publicly traded company."

Palm was a pioneer of handheld devices, but has fallen well behind competitors like Apple and BlackBerry maker Research in Motion Ltd.

"Palm believes that openness and interoperability offer better experiences for users by allowing them the freedom to use the content that they own without interference across devices and services," Palm spokeswoman Leslie Letts said.

Shares of Apple and Palm both rose more than 1 percent late Friday afternoon.

(Reporting by Gabriel Madway; Editing by Tiffany Wu and Richard Chang)