The attacker’s future has been in doubt for some time now, with his current contract set to expire at the end of the season.
He was believed to be demanding a pay increase and guarantees surrounding a position as the club’s first-choice centre-forward, requests which were initially rejected by the Gunners.
This alerted Manchester United boss Sir Alex Ferguson, who is said to be keen to take the England international to Old Trafford.
However, Walcott is reportedly willing to extend his stay in North London, with a compromise having been made between himself and manager Arsene Wenger.
The Frenchman is believed to have reconsidered the player’s importance within the squad and is happy to press ahead with a new contract, which could be signed before Sunday’s clash with Manchester City.
Walcott’s recent form has seen him become the club’s top goal scorer with 14 efforts in all competitions – eight of which have come in the Premier League.
This has furthered his claims to play as the focal point of the attack, especially with summer signing Olivier Giroud struggling to adapt to English football.