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The internal navigation between all the webpages of a website contribute to your overall SEO efforts. We will take a look at how you can best use the navigation to maximise their SEO benefits.
First and foremost, you should be thinking about the useabilty of your site and making it easy for site visitors to find what they are looking for.
Internal navigation is where a lot of sites fail. A link to a page is important, and most people only consider links from external sites. The best site navigation is plain text and uses 1 or 2 words for the Anchor text. Anchor text should clearly describe what the linked pages is about and with careful planning, it will also be at least 1 of the keywords for that particular page.
Take a look at this site's navigation for a moment. The Homepage link has "SEO Tools" Home but it only contains the first 2 words in the anchor text. We have not wasted the SEO opportunity by doing what a lit of sites do and actually use the word "Home" for their anchor text.
Search Engines index words and cannot read an Image. By "wasting" the potentially valuable anchor text with an image is not the best thing to do. To create the visual appeal of an image without wasting the anchor text by using a Background Image and a different hover background image applied with CSS, you can get all the visual effects of an image and none of the disadvantages.
Search Engines can have a hard time reading Javascript so using it for your site navigation is not a good idea. Sure it may look cool to have a javascript mouseover effect to drop down a menu or swap a couple of images when hovering, but it certainly doesn't help your SEO efforts. Nearly everything that can be done with javascript can be done with CSS without the disadvantages of javascript.
If Search Engines had a hard time with Images and Javascript, then they have an impossible time with Flash. At least you can use the "alt" attribute of an image if you have to use an image, and javascript is just text that can be read with a chance of being correctly interpreted. Flash has none of these options - there is no text and the presentation is all visual. As far as SEO is concerned, using Flash for your navigation would be your biggest mistake.