The deal means the Argentina striker is now free to pursue his move to United and his representatives said the player passed a medical at Old Trafford on Friday morning.
West Ham said in a statement: "West Ham United can confirm that a settlement has been reached today with the representatives of Carlos Tevez which will allow the player to leave the club.
"The settlement ends the current litigation taking place between the respective parties and provides for a £2million fee to be paid to West Ham.
"The agreement confirms that West Ham do have a valid player's contract with Carlos Tevez and hold the registration of the player. This will be released once the agreed fee has been paid to the club.
"The terms of the settlement are consistent with undertakings given by West Ham United to the Premier League and the rules of The Football Association."
West Ham chairman Eggert Magnusson was relieved the affair has finally been concluded.
He said: "I am obviously pleased that we have finally reached the end of this saga through agreement and common sense.
"All parties involved can now move on and truly focus on the new season.
"I wish Carlos Tevez well for the next stage of his playing career. He is a fine player and I am sure he will be successful wherever he plays football.
"Personally, I am looking forward to the next stage of our development as a club and for what I hope will be a very exciting new season in the Premier League."
Sources close to Joorabchian confirmed Tevez passed his medical in Manchester on Friday morning before visiting the club's training ground to meet his new team-mates and United officials.
Tevez is expected to be unveiled at Old Trafford early next week when the paperwork goes through.
He will not be involved in Sunday's Community Shield game against Chelsea at Wembley - but will begin training over the weekend in preparation for the start of the new Premier League season.
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