The 26-year-old former Walsall forward scored eight goals in his first 19 games for Town after joining two years ago but has been sidelined since the end of October 2012 through a broken leg.
"Alex has worked really hard for nearly two years and has done well in pre-season," manager Chris Wilder told the club's official website. "He thoroughly deserves his offer and it is a tribute to the long and difficult journey he has emerged from that he is now where he is.
"I feel this offer is sensible on all sides. We are not a charity, we all want Alex to succeed but we have to offer what we feel is right for the club and the player and fair to both sides and I am delighted he has signed his new deal.
"Ideally, he can challenge to be in our first team during this contract, which would be great, or he could play in reserves, but we are looking to get him out on loan to get a regular run of matches, which is what he will benefit from more than anything. We certainly consider Alex part of our plans moving forward."