Hammers manager Sam Allardyce is scouring the Premier League for a defender to sign on loan because of his injury crisis at the back.
Arsene Wenger is ready to sell Squillaci, and has been since the summer, but if Arsenal loan him out now to the Hammers, it would wreck any chance of a sale in January to any club other than the Hammers.
FIFA rules stipulate that a player can only be registered with two teams in a season.
West Ham need cover while Winston Reid recovers from a dislocated shoulder, but Onuoha rejected a move that City might have sanctioned, while Arsenal are opposed to a loan move across London for Squillaci.
The Hammers would consider buying Squillaci out right in January if a loan could go through now, but that is highly unlikely as the Frenchman's £40,000-a-week wages make a permanent deal prohibitive.