In a statement issued by both sides on a Mickey Mouse letterhead, Disney chairman Michael Eisner said that he was "glad that we were able to come to an acceptable settlement". He added that the time had come "to put this matter behind us".

The terms of the deal were not disclosed.

Mr Katzenberg had sued Disney for a outstanding bonus payments of between $382m and $580m, that he believed he was owed.

Jeffrey Katzenberg sued Disney for more than $250 million

The studio boss had left Disney in 1994, after working 10 years there, to become a partner in DreamWorks studio with film director Steven Spielberg and music mogul David Geffen.

The trial started in April, and soon captured the attention of Hollywood's film industry as it turned into a battle of personalities between Mr Katzenberg and his former boss, Michael Eisner.

Disney tried to depict its studio boss as a poorly performing executive, whose films - excluding animation hits - had failed to deliver any profits.

Mr Katzenberg's lawyers questioned the figures, arguing that they excluded future revenues from merchandising, video releases and television deals.

They said that the bonus payments had been withheld because of Mr Eisner's animosity towards their client.

In court, Mr Eisner was forced to admit that he had once said about his rather short colleague: "I hate the little midget."

Even though the details of the settlement are not known, financial markets reacted positively to the deal.

Disney's share price rose 25 cents to $28.06 on Wall Street.

Jeff Logson, entertainment analyst with Los Angeles brokerage Seidler Cos, said: "Wall Street always appreciates elimination of uncertainty." Investors would rather like to see Mr Eisner to focus on Disney's business "as opposed to devoting corporate resources to fighting this suit".