The versatile Pistone was released by the Liverpool-based club when his contract expired last month, the 29-year-old having rejected the offer of a one-year extension.
No Italian move
He appeared set for a return to Serie A, where he played for FC Internazionale Milano from 1995-97, but after a move home failed to materialise, he re-entered negotiations with Everton, who themselves had been struggling to replace the full-back.
Pistone has now signed up until 2007 with the Goodison Park side. "We are delighted that Alessandro is staying with us. Hopefully he can have as good a season for us as he did last season," said assistant manager Alan Irvine.
Pistone made 33 appearances as Everton finished fourth in the 2004/05 English Premiership. In all, he has played 101 league games for the Toffees since a €4.3m transfer from Newcastle United FC five summers ago.
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