The new contract will keep the player with the white castle until 2014.
The Pharaoh star had recently been linked with a move to arch-rivals Ahly and various Gulf clubs, but Zamalek board managed to reach an agreement with him despite the club’s recent financial crisis.
The twice African cup of nations winner with Egypt will receive LE1,250,000 annually with a LE250,000 increase per season.
Fathallah agreed with the club management upon a 1 million dollar buy out clause in the new contract that will allow him to leave after the first season but only outside Egypt.
The 28-year old joined Zamalek from Egyptian side Gazl El Mahala in 2007.