Heading the 22-nation body, Musa said on Tuesday there was not a "glimmer of hope" because political positions in Israel and the US had not changed.
Speaking to the Egyptian state daily Al-Ahram, the diplomat warned against the temptation of giving the Palestinians statehood that turns out to be based on no more than a rump state.
"I fear that all that is going to be proposed to the Palestinians is the creation of a rump state of a provisional nature which is just ridiculous because by consolidating the status quo a time-bomb is being laid," he said.
"If there is a true desire to establish a Palestinian state in line with the road map, then Israel must give the Palestinians 90% of the occupied territories as well as east Jerusalem and it must stop settlements."
The road map - a peace plan sponsored by the quartet of the US, EU, Russia and the UN - has moved nowhere in recent months.
The road map officially sees the creation of a Palestinian state in 2005, but newly elected US President George Bush is now talking of a Palestinian state by the time his second mandate ends in 2009.
"I fear a repeat of the scenario of 2001 when [former president] Bill Clinton proposed his peace initiative just 20 days before leaving the White House," Musa said.