O'Neill had been mulling over whether to take over at the Barclays Premier League's bottom team for the past couple of weeks but told the Hammers' owners on Monday that he was turning down their offer, leaving the club's hierarchy - in particular Karren Brady - to pick up the pieces.
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It also means Grant will be given the chance to steer West Ham off the bottom of the table and possibly to the Carling Cup final, with his side just 90 minutes away from their first Wembley final in 30 years.
Repairing vice-chairman Brady's relationship with Grant will also be high on the agenda. She has led the search for a new manager on behalf of owners David Sullivan and David Gold but will now attempt to heal the rift with Grant, whose treatment by the club has gained him plenty of support within the game.
On Monday, Sportsmail understands, itwas Brady's intention to try to rebuild bridges with Grant and discuss the way forward, both in terms of their working relationship and the recruitment of players during what remains of the January transfer window.
I'm not going there: Martin O'Neill has turned down the struggling Hammers
But given the simmering resentment that has built up over the last few weeks, Brady will have to be at her diplomatic best if she is going to heal this particular rift.
The pursuit of O'Neill has turned into a massive PR own goal for Brady and the club's owners, not least because of the shabby treatment Grant has received in the process. He has gained the sympathy and support of players, peers and from within the wider football community.
West Ham legend Julian Dicks accused Gold and Sullivan of turning the club into a 'laughing stock' over theirfailure to end the growing speculation over Grant's future.
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