But faced with a choice between giving up on the decades-old dispute or continuing UN efforts to resolve it, Annan called on the Security Council to give him another 10 months to try to find a solution.
"I hope that during this period the parties will reflect on the very long time that has elapsed since the beginning of this conflict ... and on the impossibility of resolving it unless both of them are willing to take actions that provide each with some, but perhaps not all, of what it wants," Annan said in a report to the Security Council.
The council was meeting in closed session on Tuesday to discuss the report.
If Annan's proposals are approved by the council, Morocco, Algeria and the Polisario Front independence movement would have until 28 February 2005 to resolve their differences over the future status of the phosphate-rich northwest African territory that is also believed to have offshore oil deposits.
Western Sahara's fate has been uncertain since Morocco seized it in 1975 after colonial power Spain withdrew.
'Out of the question'
Annan has been pressing the parties to accept a plan put forward by his special envoy for Western Sahara since 1997, former US Secretary of State James Baker.
Annan asked for another 10
months for a solution
In its rejection of his latest plan, the kingdom wrote to Baker on 9 April that it was, "out of the question for Morocco to engage in negotiations with anyone over its sovereignty and territorial integrity."
Baker proposed making Western Sahara a semi-autonomous part of Morocco for four to five years, followed by a referendum letting residents choose either independence, continued semi-autonomy or integration with Morocco.
Algeria and the Polisario welcomed the plan, but Morocco appeared to torpedo it, telling Baker it could accept only "autonomy within the framework of Moroccan sovereignty."
The Polisario Front, backed by Algeria, waged a guerrilla war with Morocco from 1976 to 1991 in hopes of regaining independence for the territory. Since 1991, a UN peacekeeping mission has pressed for a referendum on independence, but has been plagued by delays.