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Schwarzer, who would be available on a free at the end of the season, handed in a transfer request in August to try and force through a move to Arsenal but no deal materialised.
The 38-year-old Australian, who joined the Cottagers from Middlesbrough in 2008, has now agreed a new deal that contains the option of a one-year extension.
Fulham manager Mark Hughes said: "He was obviously very flattered by the interest [by Arsenal]. We're delighted that he's decided to stay here and we can move forward now."
Hughes continued: "It's something we've wanted to do for quite some time. I think Mark was keeping his options open and he had every right to do that. He's very happy to sign."
Schwarzer will line-up against Arsenal when Fulham travel to the Emirates on Saturday.
via ESPN Soccernet
Surely.....surely part of this decision was looking over at Eastlands and realizing that the likes of Shay Given can't get a game. Mark Schwarzer is a quality keeper, but Shay Given inevitably is the Arsenal target in January or in the summer. And aside from the Arse I don't know of many other places the likes of a Schwarzer can go but down.
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