We are going through the same thing right now! The school went ahead and placed her in a reading program. She has been in the program for 2 weeks and has already made an improvement. Ask your school if they have such a program.
My daughter likes the idea of reading and loves to be read to, but gives up when it comes to reading.
Today we have done a few pages from her Scholastic Success with 1st Grade workbook (ISBN 13:978-0-439-56969-9). It has a great section on reading comprehension. You read a short story (I made her read it) and then she has to answer the questions.
At first she didn't want to read, lost focus, was doing handstands in the chair, and may have picked her nose a few times. I was a little harsh on her and made her cry, but we got past that. I let her know a few things. I have a 40 year old cousin that didn't have anyone to sit with her and help her study when she was in school. She dropped out of school in 6th grade because it became too hard and she was too far behind. She cannot write in cursive and interchanges capital and small letters in her words. Then I told her about someone I know (my daughters cousin) who posts things in FB all day, but no one can understand what he means because he does not follow the rules of the english language. Therefore, no one knows what he means. I have seen kids comment, "Dude get a dictionary" and "This reminds me of preschool". At that point she started to cry and said I was making her sad. Then I told her it can be done, it just takes hard work because I have another cousin who was born mentally retarded, which means she is slower and can do things, but it takes more work. She finished high school and writes perfect english and posts in FB all the time too. It just took her longer to learn, but she did it. Then I followed up with reminding her that practice makes perfect and her ice skating is a perfect example. I reminded her that she started out using a walker on the ice and still went tripping all over the ice and now she is beautiful on the ice. With that, we went back to work and she was so proud of her reading after that.
I know not everyone will agree with making her sad with the truth, but I believe sometimes you have to be a little harsh and give a little push. It is better to tell her this with love rather than have a school tell her with a big fat F or have kids make fun of her and call her names. I will remind her how beautiful and smart she is throughout the day. As well, she will be beautiful on the ice in a few more hours. As a little reward, I am taking her to Kid to Kid and she can trade in some things for something new to her...her choice.
Good luck and best wishes!