The late King of Pop had chosen his long time friend to be the person to care for Paris, Prince and Blanket should his mother Katherine be unable to.
But after the family fiasco in the last few weeks which led to Tito's son TJ being brought on as a co-guardian, Diana will reportedly sign off on the new agreement.
"Diana has no qualms whatsoever about the new custody agreement, she only wants what is best for the children," a source told RadarOnline.
"Diana knows that the children are old enough to decide who they want to live with and she defers to what they want. While Diana hasn't been a big part of their lives because she lives on the East Coast, she is very fond of them."
Michael's siblings, Randy, Jermaine, Rebbie and Janet Jackson, have been trying to overthrow the executors of the Michael Jackson Estate and claim that the deceased star's will is false.
They have reportedly now been banned from entering the Calabasas home where the kids live with Katherine.