Microsoft is expanding the capabilities of its Windows Azure cloud services, adding the ability to make Azure infrastructure part of a hybrid cloud, adding raw virtual compute power, support for more programming languages, development platforms and more.

Once the new services are in effect (Microsoft is only doing a preview on Thursday), developers will be able to build applications that span their own servers (on-premise or in a colo) and virtual machines in the Azure cloud, Bill Lang, Microsoft’s corporate VP Server and Cloud, wrote in a blog post.

“By combining infrastructure and platform services, these new capabilities of Windows Azure give you greater flexibility in how to build or bring your applications to the cloud,” Lang wrote.

The move further pits Microsoft against Amazon Web Services, the largest provider of cloud-based virtual servers and storage capacity, also known as Infrastructure-as-a-Service (IaaS), in the public-cloud market.

Microsoft launched Azure early in 2010, starting with Platform-as-a-Service offerings (providing an application development platform with infrastructure to support it underneath). Google has similar offerings.

Now, Microsoft Azure is competing directly with both Google and Amazon for the public-cloud market share. Other major players in the IaaS space include Rackspace, SoftLayer and others, all of whom Microsoft will now also compete with.

There are two new services that link on-premise infrastructure with Azure: Azure Virtual Machines and Azure Virtual Network. The Virtual Machines service allows customers to move virtual hard disks between on-premise servers and the cloud.

The Virtual Network service provides a way to create and manage virtual private networks in the Azure cloud and connect them to on-premise networks in the customers’ data centers.

Microsoft has also added a new service for building and deploying web sites in the cloud. The new Azure Web Sites service supports .NET, Node.js and PHP scripting languages as well as open-source content-management systems like WordPress, Joomla!, Drupal and others.

Besides new features, Microsoft is also extending the availability of Azure to 48 new countries. Once this bit is complete (expected later this month), Azure will be available in 89 countries.