We present the optical identification of a sample of 695 X-ray sources detected in the first 1.3 deg ^ { 2 } of the XMM-COSMOS survey , down to a 0.5-2 keV ( 2-10 keV ) limiting flux of \sim 10 ^ { -15 } erg cm ^ { -2 } s ^ { -1 } ( \sim 5 \times 10 ^ { -15 } erg cm ^ { -2 } s ^ { -1 } ) . In order to identify the correct optical counterparts and to assess the statistical significance of the X-ray to optical associations we have used the “ likelihood ratio technique ” . Here we present the identification method and its application to the CFHT I-band and photometric catalogs . We were able to associate a candidate optical counterpart to \sim 90 % ( 626 ) of the X-ray sources , while for the remaining \sim 10 % of the sources we were not able to provide a unique optical association due to the faintness of the possible optical counterparts ( I _ { AB } > 25 ) or to the presence of multiple optical sources , with similar likelihoods of being the correct identification , within the XMM– Newton error circles . We also cross-correlated the candidate optical counterparts with the Subaru multicolor and ACS catalogs and with the Magellan/IMACS , zCOSMOS and literature spectroscopic data ; the spectroscopic sample comprises 248 objects ( \sim 40 % of the full sample ) . Our analysis of this statistically meaningful sample of X–ray sources reveals that for \sim 80 % of the counterparts there is a very good agreement between the spectroscopic classification , the morphological parameters as derived from ACS data , and the optical to near infrared colors : the large majority of spectroscopically identified broad line AGN ( BL AGN ) have a point-like morphology on ACS data , blue optical colors in color-color diagrams , and an X–ray to optical flux ratio typical of optically selected quasars . Conversely , sources classified as narrow line AGN or normal galaxies are on average associated with extended optical sources , have significantly redder optical to near infrared colors and span a larger range of X–ray to optical flux ratios . However , about 20 % of the sources show an apparent mismatch between the morphological and spectroscopic classifications . All the “ extended ” BL AGN lie at redshift < 1.5 , while the redshift distribution of the full BL AGN population peaks at z \sim 1.5 . The most likely explanation is that in these objects the nuclear emission is not dominant with respect to the host galaxy emission in the observed ACS band . Our analysis also suggests that the Type 2/Type 1 ratio decreases towards high luminosities , in qualitative agreement with the results from X–ray spectral analysis and the most recent modeling of the X–ray luminosity function evolution .