Rangers tonight agreed a compensation deal with the Scottish Football Association to prevent the disquiet over former national team manager Walter Smith's resignation going to court.

The SFA threatened to take legal action against Smith "for breach of contract" and against Rangers "for inducement to breach the contract" following the dramatic events in Glasgow yesterday.

Smith resigned on a quick visit to SFA headquarters at Hampden Park, and was presented as Rangers boss - for a second time - in the afternoon.

However the prospect of an row between the national association and the Old Firm giants now appears to have ended.

Rangers are understood to have agreed to make a payment in the region of £400,000 to end the impasse between the two parties.

The SFA board are to meet on Monday, when the payment is set to be ratified. Smith met briefly with David Taylor, the SFA chief executive, yesterday morning and handed in a resignation letter.

The SFA had previously rejected Smith's request to be released from his contract to return to the club he led to seven consecutive league titles in the 1990s.

Speaking yesterday, Taylor said: "Walter's departure is a serious blow to the Scottish FA.

"He has done an excellent job for us and the Scottish national team. We are very disappointed that he has chosen to leave us at this critical time in our Euro 2008 qualification campaign."

In their statement which confirmed Smith's departure, the SFA claimed "proceedings will require to be raised" against both Smith and Rangers.

Initially it seemed the two parties were poles apart in terms of the level of compensation which would be paid.

However Rangers were eager to draw a line under the issue, while it was also in the interests of the SFA to move on, as they look to replace the man who has led Scotland to the top of their Euro 2008 qualifying group.  PA