The transitional arrangement would need to be inclusive and deal with electoral law, rule of law and economic policy issues as well as President Mugabe's retirement.
It says the international community could also agree on a package of incentives to be delivered once the transitional arrangements were in place.
These could include reengagement of international financial institutions, serious development aid, and normalisation of diplomatic relations.
It says there would be three main contentious issues: elections, land reform and the status of Mugabe.
The MDC is likely to press for early elections while ZANU-PF will oppose fearing their own "thin" electoral base.
It says the parties would likely agree to restore a legal process to the land issue and try to find a way to draw back some commercial farmers and thus demonstrate that Zimbabwe was once again safe for foreign investment.
The report says the third issue could be vexing.
"The disposition of Mugabe will be vexing. The MDC and some within ZANU-PF will want him to retire, while others would accept a ceremonial presidency that allowed him to serve his full term but with truncated powers."
The report says another contentious issue would be the question of immunity.
International activism would, however, help advance compromises as important elements in both parties seem to be groping for a way out of the stalemate.
"A negotiated resolution would satisfy no one completely," the report says, "but everyone enough to get Zimbabwe moving again. Alternative scenarios – including state collapse, armed opposition, and increased unstructured violence – make the effort imperative and failure unthinkable."