Casspi's two-year, $2 million deal will include a team option in 2014-15, a league source said.
Casspi, 25, played an increasingly diminished role with the Cavaliers the past two seasons. The Rockets had long been interested in signing Casspi and became even more interested in his shooting touch with the commitment of free-agent center Dwight Howard.
Casspi averaged a career-best 10.3 points in his rookie season with Sacramento in 2009-10.
Cleveland traded J.J. Hickson to the Sacramento Kings for Casspi and a protected first-round draft pick prior to the 2011 lockout.
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