The 31-year-old has signed an 18-month contract at Upton Park to end a miserable spell at Anfield.
Cole told his new club's official website: "It is a great move for me. This is where I learnt my trade and I'm happy to have another chance to be here. I've always loved West Ham and I hope I can give the club a few memorable seasons."
Cole emerged from the club's academy to sign professional terms in 1998 and helped them win the FA Youth Cup the following year, becoming a firm fans' favourite before leaving for Chelsea in 2003, when he became one of their first signings following Roman Abramovich's takeover of the club.
There, he won eight major trophies including three Premier League titles, was named in the Professional Footballers Association team of the year in 2006 and has won 56 full England caps.
But after joining Liverpool as a free agent, he was sent off on his Premier League debut and missed a penalty in his next appearance, a Europa League qualifying match against Trabzonspor. The poor start set the tone for a Reds career hampered by form and fitness problems and he was allowed to spend last season on loan at Lille.
He scored nine goals in 42 appearances for the French club and will have the opportunity to further rebuild his career at the club where he first made his name.
Cole said: "The timing was right for me to come back and I'm happy. I'm back in London and I'm delighted to be here. I want to be here and I want to make an impact.
"Sam (Allardyce, manager) didn't have to sell me the club for me to come back. I have had 18 months at Liverpool where I haven't played much football and Sam wants to play me.
"I'm going to need games to get back to my best, but I want to play football and come here and help the team to make an impact.
"I could see from the outside what a great bunch of lads we have here and there is a great spirit. I'm excited."
The warm reception he received from the Upton Park crowd when he returned with Liverpool last month, which he reciprocated by not celebrating his goal in the Reds' 3-2 win, was also a factor in his return.
"It was a big thing in me coming back, the fact that everybody here wants me to do well," Cole added. "The fans have always been great for me, whenever I have been back and also when I've been in the area visiting family.
"I feel like I owe the club a little bit as well because if it wasn't for West Ham I wouldn't be a footballer. This club's great youth-team coaches taught me the trade."
The Hammers lie 11th in the Premier League table after 20 games and Cole is optimistic about their prospects for the remainder of the campaign.
"The first season in the Premier League is always the toughest one and the boys have done brilliant to get 26 points on the board," he said. "We would like to match that in the second half of the season and crack on from there.
"We have got a lot of England internationals and a good strong squad here, so our home form is going to be vital."
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