A summit of Southern African Development Community (SADC) gave Mugabe and rival Morgan Tsvangirai until mid-February to form a unity government.
Marathon talks of SADC leaders in Pretoria, which ended early on Tuesday, sought to end a deadlock over the allocation of key posts that has stalled the implementation of a September 15 power-sharing deal.
The SADC decision came as the World Health Organisation (WHO) said the death toll from the cholera outbreak in Zimbabwe is approaching 3 000, with over 56 000 people infected by the disease since August.
South African President Kgalema Motlanthe, who presided over the SADC meeting, told reporters "all the parties expressed confidence in the process and committed to implementing the agreement".
"Issues were debated with frankness so that at the end when consensus is arrived at, there should be no question that will remain unanswered," he said.
A tentative proposal
Tsvangirai’s Movement for Democratic Change said that SADC decisions fell "far short of our expectations".
Although the opposition party declined to say if it rejected or accepted the outcome of the summit, for the first time it indicated that it would subject the decisions to the final say of its supreme organ which meets on Friday.
"That was a tentative proposal that was given by SADC. The ultimate and final decision would have to be made by the party’s national council on Friday," MDC spokesperson Nelson Chamisa said.
"All decisions that have been made have to be ratified by the supreme organ of our party as a democratic institution. This is a recommendation and judgement by SADC," he said in a South African radio interview.
Analysts said that the SADC decision has put the MDC is a tight situation, leaving it with difficult options.
Lovemore Madhuku, a Harare constitutional law expert, said: "The SADC resolution has basically rejected the MDC position. So, the ball is now in the MDC court, there is no recourse in terms of diplomatic offensive on the continent for the MDC."
"The MDC won’t get anything better than that (SADC resolution)," he said, adding that the party "may end up settling for a power sharing" with Mugabe’s ruling Zanu-PF party.
"Morgan Tsvangirai and MDC should now join this inclusive government but they should demand that both SADC and Mugabe give him a time frame" to meet their demands, Tapfumaneyi Matambo, a Harare auto mechanic, said.
Some of the demands include equitable allocation of ministries, the appointment of key government positions, the release of activists and opposition members being detained, and a definition of national Security Council legislation.
Takura Zhangazha, political analyst and director of the Zimbabwe Chapter of the Media Institute of Southern Africa, said, "This is a resolution which SADC wants to take to the African Union summit which they would want to indicate as work in progress."
Although the SADC timeline appears to be a step forward, one expert stressed it was still to be agreed by both parties and noted there was little to bind 84-year-old Mugabe to the deal.
"The decisions look promising but the big challenge is implementation," said Dirk Kotze of the University of South Africa.
"SADC is just a body of states and none of its decisions are binding. If any of the parties reneges on the SADC recommendations, then we are back to square one," he said.
Since last March after the elections, Zimbabwe has plunged deeper into economic crisis with massive unemployment and crippling hyper-inflation, and half the population dependent on food aid.
Most striking teachers across Zimbabwe continued their work stoppage Tuesday over pay, paralysing school opening.
They are demanding to be paid in foreign currency.