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The Royals had been hoping to have an injunction slapped on the 42-year-old which would have prevented him from joining the Hammers.
Royals Chairman John Madejski, who had been angered by Pardew's lack of loyalty, was desperate to prevent his manager joining the Hammers, Reading's First Division rivals.
However, the clubs have now come to an agreement over a compensation package. West Ham are reportedly going to pay £380,000 plus legal costs to the Royals.
Temporary boss Trevor Brooking is expected to remain in charge of West Ham for the next seven matches, until Pardew can officially take charge on October 18th.
At Reading, assistant manager Kevin Dillon will manage the first team until a suitable successor to Alan Pardew can be found. However, that successor is expected to be Dillon himself.
The Hammers had two official approaches for Pardew rejected before the Royals boss tendered his resignation eight days ago. Not wanting to lose Pards, who did a fantastic job at Reading, the board blocked his departure. However, High Court action gave Pards the decision he wanted.
Alan Pardew took control of Reading in September 1999 when the Royals were languishing at the bottom of the Second Division. With relegation a racing certainty, Pards remarkably managed to turn things around.
Following the relegation-escaping success, things began to build at the Madejski Stadium. The following year Reading narrowly missed out on promotion when they were beaten by Walsall in the Division Two Play-Off Final. However, in 2001-02 the Pardew's outfit achieved that elusive promotion.
Last season saw the Royals tear up the pre-season prediction tables, stunning the league with an incredible fourth place finish. In the end personal greed and ambition triggered his departure.