The mysql_ functions provides a procedural interface to MySQL, and are adequate for many applications. However, they do not take advantage of the newer features to MySQL, including prepared statements and the multiple result sets from stored procedures. For new development, then, mysqli is the better choice. You can still choose whether to use it in a procedural or object-oriented manner. See http://dev.mysql.com/doc/refman/5.0/en/php.html for more details.
Also note that mysqlnd, a replacement for libmysql, is under development. This new library does not indicate changes to PHP scripts, which will continue to use mysqli functions. Rather, it is a new way for PHP to connect to MySQL "behind the scenes," and offers some performance improvements. See http://dev.mysql.com/downloads/connector/php-mysqlnd/ for more information.
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