The 21-year-old, who made his Premier League debut four years ago, has been in fantastic form for Germany at the Rio Olympics, bagging five goals in three appearances.
That impressive return had lead German publication Sport Bild to claim Hertha Berlin were targeting the Gunners hotshot for a summer transfer – although a loan deal appeared far more likely.
But according to London Evening Standard, the Bundesliga outfit have now ended their interest in the explosive wide man, who has also represented his country at U16, U17, U18, U19 and U21 level.
Whether Gnabry’s impressive form in Brazil will see him claim a place in Arsene Wenger’s plans for the season remains to be seen.
The youngster failed to impact on loan at West Brom last season, making just one Premier League appearance before being recalled in January.