Seeking to keep the peace in its popular online hangout, Facebook Inc. has overhauled a new advertising system that sparked privacy complaints by turning its users—many of whom are students—into marketing tools for other companies.

Under the changes outlined late Nov. 29, Facebook’s 55 million users will be given greater control over whether they want to participate in a three-week-old program that circulates potentially sensitive information about their online purchases and other activities.

Facebook had provided two different opportunities to block the details from being shared, but many users said they never saw the “opt-out”...

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