Two museums announced Monday that they had reached a settlement with heirs of the original owner of two Picasso paintings, including ''Boy Leading a Horse,'' who contended that they had been sold under duress in Nazi Germany. The terms of the agreement, reached as a trial was about to begin in federal court in Manhattan, were not disclosed. But the Museum of Modern Art and the Solomon R. Guggenheim Museum said in a statement that they would continue to own the works. The suit involved ''Le Moulin de la Galette,'' given to the Guggenheim in 1963 by the art dealer Justin K. Thannhauser, and ''Boy Leading a Horse,'' sold by Mr.Thannhauser to William S. Paley, who donated it to MoMA in 1964. In 2007 lawyers for Julius H. Schoeps, a great-nephew of the paintings' original owner, Paul von Mendelssohn-Bartholdy, told the museums that they believed Mr. Mendelssohn-Bartholdy, a German Jewish banker who died in 1935, had sold the works to Mr. Thannhauser under duress, and demanded their return. [ABSTRACT FROM PUBLISHER]