In the report, which will be presented to the United Nations Security Council on Tuesday, Annan says, "It is important that Iraqis are able to see a clear timetable leading to the full restoration of sovereignty."
"There is a pressing need to set out a clear and specific sequence of events leading to the end of military occupation," the report states.
The principal message is that "democracy could not be imposed from outside" and that it must originate inside Iraq, Annan said in the report, made available to reporters on Friday.
The secretary-general notes that his special envoy to Iraq Sergio Vieira de Mello has raised UN concerns with the US-led Coalition Provisional Authority (CPA), headed by the US occupation administrator Paul Bremer.
"Democracy cannnot be imposed from outside"
And he reminds the CPA of its duty to comply with international laws governing human rights. "Security remains a priority concern for all the Iraqis with whom my special representative has spoken during this initial period," the report says.
"Security, or the lack of it, affects every aspect of life in Iraq today in a fundamental way. Daily living conditions have not improved, at least for those living in urban areas, and may have got worse" since the US-led occupation, Annan continues.
"Above all, my special representative's contacts expressed deep concern about the precarious, some believed deteriorating security situation, particularly in Baghdad,” he says.
"They feared that if not addressed quickly, insecurity would hamper efforts to address many of their immediate other concerns, notably the inadequate provision of basic public services and the pressing need to create jobs for Iraq's high level of unemployed," Annan wrote.
The secretary-general also said "a central concern raised is the current human rights situation, particularly as affected by the actions of the CPA."