McGrath has played for Yorkshire for the past 12 seasons

McGrath had been set to leave despite having two years left on his contract but Friday's mediation hearing at Lord's has now been cancelled.

But Darren Gough's arrival as captain, and the expected appointment of Martyn Moxon as director of cricket appears to have convinced the 31-year-old to stay.

"Goughy will breathe new life back into the dressing room," McGrath said.

McGrath made almost 1,300 first-class runs last summer, including four centuries and nine fifties, but explained his reasons for wanting to leave.

"I had not enjoyed my cricket, the atmosphere in the dressing room was becoming unbearable and I felt that, as a club, we were not making progress," he said.

"The club have shared their vision for the future with me, they have added quality players to the squad, invested in the strength and conditioning staff and facilities, organised a pre-season tour to get the lads together and most importantly appointed a captain who I fully support.

"I want to remain as part of the Yorkshire team and do not want to leave only to then regret my decision as Yorkshire go from strength to strength."

This is a very good week for Yorkshire and I am delighted that Anthony will be remaining with us Stewart Regan

It is a dramatic turnaround given that McGrath's legal team insisted only a matter of weeks ago that his contract with the club had been terminated.

"My family and friends are all in this county and if I am really honest I could never have been comfortable leaving them behind," he said.

"I know many of the members have been upset that I wished to leave and I am determined to show them just how much Yorkshire means to me.

"I am sorry for all of the uncertainty of the past few months but I want to put it all behind me now and focus on my cricket. Most of all I want to see Yorkshire having a great season in 2007."

Yorkshire chief executive Stewart Regan, who has been involved in the negotiations throughout, was pleased to resolve the issue favourably, and looked forward to a prosperous season at Headingley.

"We have worked hard to turn things around and bring in some exciting players and we have proved to Anthony that we are ambitious and determined to bring success back to this club," he said.

"Most importantly we will create the right environment in which he can play cricket to the highest possible standard and be happy in so doing.

"This is a very good week for Yorkshire and I am delighted that Anthony will be remaining with us.

"Our relationship has never faltered during the legal process which has taken place in the background and that has helped enormously at the 11th hour."