The USD 583,000 pact involves 14 demonstrators who said police ordered them to leave but prevented them from doing so and arrested them in lower Manhattan early on New Year's Day 2012.
The disorderly conduct cases got dismissed, according to the protesters' federal lawsuit, which argues they were arrested "for expressing their views."
The protesters were demonstrating against economic inequality and inspired similar protests around the US and the world.
The protesters had convened on December 31, 2011, in Zuccotti Park, the lower Manhattan plaza where the Occupy protesters had set up camp from the previous September until the city rousted them that November.
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Shortly after midnight, some of those at the New Year's Eve gathering set off to walk en masse to Manhattan's East Village.
The lawsuit says they behaved peacefully, obeyed traffic laws and believed police had given them tacit approval to walk together on the sidewalk, as officers had at times blocked traffic to let them cross streets safely together.
Video supplied by their lawyers, the firm Stecklow Cohen & Thompson, shows officers saying the demonstrators are blocking the sidewalk and will be arrested if they don't leave, while some of the protesters ask how they can.
Some footage show police pointing out ways the demonstrators can go; subsequent parts show arrests beginning.
Police have made more than 2,600 arrests on various charges at Occupy-related events over time.
The Manhattan district attorney's office agreed to dismiss more than 78 per cent of the cases, mostly on condition that defendants stay of trouble for six months.