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Kenyan President Mwai Kibaki and opposition leader, Raila Odinga have agreed to work with a panel of three eminent African personalities, headed by Mr Kofi Annan, the former UN Secretary-General, to resolve any sticky points in the dispute.
The remaining two members were however not named.
A BBC report however indicated that the cause for the breakdown of the negotiations stemmed from the refusal of President Kibaki to sign a communique earlier agreed between the two factional leaders and the AU Chairman President Kufuor.
A statement issued by the AU Chairman at the end of their deliberations in Nairobi, said the parties also made an undertaking to cease all hostilities which had led to the death of about 600 people and the displacement of about 500,000 others.
The communique said the parties had agreed to "an immediate cessation of the violence, as well as any acts which may be detrimental to finding a peaceful solution to the ongoing crisis".
The parties further agreed to resort to dialogue, under the auspices of the AU, in the search for a lasting political solution to the crisis.
President Kufuor appealed to all Kenyans, as well as the friends and partners of Kenya, to collaborate with the AU to support the process of dialogue and reconciliation and to ensure the restoration of peace and stability, which were prerequisites for the continued promotion of sustainable development in the country.
During discussions with the parties, the Chairman of the AU expressed regret over the acts of violence and loss of innocent lives and property and urged all the political parties and their supporters to refrain from any such acts.
President Kufuor was invited to Kenya in his capacity as the AU Chairman by President Kibaki to help resolve Kenya's election dispute.
Kenya was thrown into violence following the December 27 elections in which President Kibaki was declared winner. The main opposition leader, Mr Odinga, challenged the results, claiming that the elections were rigged. The controversy degenerated into bloody violence.
Meanwhile, the BBC reports that talks conducted by President Kufuor to end Kenya's political crisis have broken down, quoting opposition and government sources.
Mr Kufuor had been hoping to broker a deal between President Kibaki and opposition leader Odinga after last month's disputed elections.
The opposition Orange Democratic Movement (ODM) said the talks failed after President Kibaki refused to sign a document agreed by both sides and approved by World Bank Country Director, Colin Bruce.
Both sides agreed there should be an end to the violence and they also agreed there should be dialogue.
The key points of the document are that they want a credible, independent and impartial investigation into the issues arising from the elections, to determine whether a re-run of the elections is necessary and, if so, to provide a time frame for recommendations on the structure of government up until the re-run.
But the President's office was quick to disown the document.
"The government had offered dialogue, which was to be facilitated by President John Kufuor, but the ODM leaders have not been responsive," a statement said.
Mr Kibaki had invited his rival to hold face-to-face talks last Friday but Mr Odinga refused, unless the talks were led by international mediators.
But Ghana's President seemed more upbeat, although it is not clear when the new panel would start work.
But some analysts say the failure of the initiative puts the negotiations back at square one, and it remains to be seen whether an agreement can still be reached.
The top US official for Africa, Jendayi Frazer, and four former African presidents have also been in Nairobi, trying to seek a solution to the crisis.
Mr Kibaki maintains he won the election fairly, but Mr Odinga said it was stolen.
Earlier, police fired tear gas to disperse a group of about 100 women who were protesting about the election.
Source: Daily Graphic
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