Real Madrid are set to pull out of their move for Jose Antonio Reyes after losing patience with Arsenal's £16.5 million asking price for the Spanish international forward.

Arsenal consider the 22-year-old's value to be undiminished from the fee they agreed with Sevilla in January 2004. However, the Bernabeu club are aware that Arsenal have paid Sevilla significantly less than the £16.5 million figure, due to the arrangements of stage payments and bonuses.

Madrid are unwilling to raise their £8 million initial offer much beyond £10 million and Arsenal's intransigence has led to a deadlock. Real's coach Fabio Capello has identified Lyon's holding midfielder Mahamadou Diarra as his main transfer target.

For that hoped-for move to be completed, Real will have to come near the £20 million demands of the Mali international's club, blowing a big hole in the Spanish club's summer budget.

"Our effort will be concentrated on Diarra, on Capello's orders," said the Madrid president, Juan Ramon Calderon, yesterday. "Reyes will only come here if Arsenal meet our conditions."

However, this summer has seen Arsenal fighting off hostile offers for their players and, although they have already lined up the France winger Franck Ribery as Reyes' replacement, there is little prospect of last season's Champions League finalists softening their stance.

Indeed it is not by coincidence that Arsenal have orchestrated a stand-off with the world's commercially richest club, Madrid, over Reyes and Chelsea, who boast the football world's deepest resources, over Ashley Cole. Arsenal intended their switch to the Emirates Stadium to represent their accession to the group of footballing superpowers and they are keen not to be emasculated by yielding to the transfer demands of two supposedly bigger clubs.

That will come as a blow to Reyes, who has pleaded with his club to let him realise his "dream" move to the Bernabeu. "I feel sorry for the lad if the deal doesn't come off but we have no obligation to sign him come what may. The ball's in Arsenal's court," added Calderon.

There was happier news for David Beckham, considering his position in the new regime at the Bernabeu had appeared almost as uncertain as his place in Steve McClaren's team. However, after a year of speculation, he has at last been offered an extension to his contract.

"We have spoken to Beckham's agent and agreed that we will extend his contract," said Calderon. "For Madrid he is indispensable because of the way he plays and what he represents."

Ronaldo will not leave Madrid for Milan or his former club Internazionale, according to Capello yesterday: "I have spoken with Ronaldo but it was a chat like with the rest [ of the team]. I don't see any possibility of Ronaldo joining Milan or Inter."

Speculation about the Brazil striker's future has increased since Calderon said this week that Milan had made contact about signing the 29-year-old.

Ronaldo is reportedly considering leaving because he may lose his place to Ruud van Nistelrooy, the £10.5 million signing from Manchester United.

Spanish reports have also suggested Madrid may offer Ronaldo to Milan in exchange for Kaka, whose arrival was promised by Calderon in his campaign for the club's presidency last month.

But Capello's remarks were supported by Calderon in an interview with the sports daily As, published yesterday.