Alex Welch, the girl who was allegedly in a fight with Demi Lovato which eventually led the Disney star into a meltdown and rehab, has decide to drop legal charges against her.

Demi Lovato is reportedly working out a financial settlement with dancer Alex Welch.

Demi’s attorneys have had an initial discussion with Mr Karpel (lawyer for Welch). They are exploring the possibility of an amicable resolution of this matter, said Lovato's representative.

There were reports earlier that Welch was seeking medical help and damages for the costs. She claimed that Lovato punched her in the face and left her with a black eye and bruises. She said that she was still awaiting an apology from Lovato.

The alleged altercation happened at an airport when Lovato and Welch, a backup dancer, were both travelling as part of the Jonas Brothers' South America tour. Demi attacked Welch because she believed she had snitched on her about attending late night parties and snorting cocaine.

Meanwhile, Demi’s camp said that she would like to call Welch but was unable to do so because of treatment centre rules.

Demi Lovato's dad had warned Alex Welch not to take legal action: Demi has really good lawyers and so does Disney, this girl shouldn't sue, Patrick Lovato had said.

She won't win, the star's dad was quoted as saying in reports on Radaronilne.com.

Details on the proposed settlement are awaited.