The British newspaper The Sunday Times reported that US officials recently met secretly with Iraqi commanders north of Baghdad to negotiate an end to the bloodshed.
Britain has also been contacting Iraqi fighters, Prime Minister Tony Blair announced on Monday.
Asked whether this was good or bad, Annan said: "I think everybody agrees that it is essential that one makes a process in Iraq as inclusive and participatory as possible and also try to reconcile the Iraqis.
"I think reconciliation and participation is part of the process, so if one can pull as many people in, it is important, because there is no military solution."
Contacts with the fighters are "part of the process to try and resolve this politically, and I think to try to explain to everyone in Iraq what they have to gain by coming into the process", Annan said.
"So, I have no difficulties with that. I think it is the correct thing to do," he told reporters.
Blair said the UK has joined the
US in contacting the fighters
Asked about the negotiations, General George Casey, the US commander of the US-led forces in Iraq, said on Monday the situation in Iraq "will ultimately be settled by negotiation and inclusion in the political process".
"It will not be settled on the battlefield," Casey said.
In London, Blair said Britain has joined the United States and the Iraqi government in contacting elements of the armed opposition in Iraq to promote stability, but the prime minister declined to predict how long it will take to stabilise the country.
"We are not compromising our position with terrorism or any of the rest of it. We are simply trying, perfectly sensibly, to pull as many people into the democratic fold as possible," Blair said.
Iraqi writer and journalist Abd al-Razzaq al-Na'as told Aljazeera that the talks were an admission of US failings in Iraq.
"It is an absolutely US initiative calling for calming down the situation. They have finally reached the end of the tunnel, without seeing light at the end."
Asked whether the negotiations reflected the popular wish in Iraq, al-Na'as said: "This is an explicit recognition that the resistance has its own national demands and that the US and even the Iraqi government should open dialogue with the resistance in order to halt this bloodshed."
But al-Na'as said he believed Monday's downing of an American helicopter, claimed by the Jaish al-Mujahidin, showed not all groups in Iraq were talking with the US.
"There are multiple messages released by various factions in Iraq, not only by Jaish al-Mujahidin," he said.
"According to media estimates and information leakages, there are around 21 armed groups resisting the US occupation in Iraq. Jaish al-Mujahidin denies involvement in any relations or political dialogue with the US."