In a joint statement, the agreement was described as "satisfactory settlement for compensation" but the figure paid by the Hammers - which has been reported to be as high as £25million - was not confirmed.
It means the independent tribunal chaired by Lord Griffiths to rule on the controversy will not reconvene.
The statement from Blades chairman Kevin McCabe and West Ham chief executive Scott Duxbury said: "Both clubs are pleased to announce that a satisfactory settlement for compensation has been reached which brings the dispute between Sheffield United and West Ham to an end.
"The tribunal will not be resuming."
McCabe said: "We are happy and satisfied with the settlement with West Ham. Throughout the finalisation of the terms for the agreement, the discussions were friendly, co-operative and in the best of spirit with both the Blades and Hammers advisory teams.
"We are two clubs with a fantastic footballing history who now want to move on and focus on the business of playing football - hopefully for us against the Hammers in the Premier League next season.
"We look forward to a positive ongoing relationship with West Ham at all levels."
Duxbury said: "For everyone concerned, the time was right to draw a line under this whole episode. We have had very positive discussions over a number of days with Sheffield United and acknowledge their willingness to resolve this in the best interests of both clubs.
"This now allows us to concentrate on our immediate ambitions, which include a strong finish to the Premier League season and possible European qualification, without any negative impact on our long-term project. We wish Sheffield United well in their bid to secure promotion from the Championship."