He did not say how long it would take to deploy the extra troops into Darfur, a remote desert region of western Sudan.
Annan said: "The next step is for the UN and AU to call a meeting of the non-signatories [of the Darfur Peace Agreement]... and the government of Sudan.
"It should take place in the next couple of weeks to resolve outstanding issues by the end of the year."
However, there are still several obstacles to the deployment of the UN force.
The conflict has made millions homeless
Omar al-Bashir, the Sudanese president, has previously refused to allow non-African troops to enter Darfur, saying they would be "neocolonialists".
Mustafa Osman Ismael, a Sudanese presidential adviser, told Al Jazeera English that the government did not "have any roof" on the number of troops that could be deployed.
Andrew Simmons, Al Jazeera's correspondent at the AU command in Darfur, says while the developments are a step forward there is no optimism in the region by any means.
The AU's mandate in the region expires in six weeks time.
Major-General LFK Aprezi, the commanding officer, said he urgently needs more troops as the security situation on the ground, particularly in western Darfur, continued to deteriorate.
Aprezi said that with only 5,000 men monitoring a region the size of France at present, each of his soldiers is policing an area of between one and a half and two square kilometres.
He said the ceasefire commission in place was "ineffective because we cannot see violations carried out on the ground."
"For the AU, 17,000 men is very ambitious but if it happens, well, that would be fantastic."
The latet call for more troops comes amid reports of increasing attacks on Darfuri women and children.
The UN under-secretary for humanitarian affairs, Jan Egeland told Al jazeera he had heard "story after story of the deteriorating situation. I never thought it would get that bad."
The United States on Friday welcomed the tentative agreement.
"My hope now is that the Sudanese government will accept this proposal"
Condoleezza Rice, US secretary of state
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Condoleezza Rice, the US secretary of state, told reporters travelling with her in Vietnam for an Asia-Pacific summit: "It is certainly a real opportunity to resolve what has been an extremely difficult problem.
"My hope now is that the Sudanese government will accept this proposal because the situation in Sudan in not improving."
The war in Darfur erupted in February 2003 and since then at least 200,000 people have been killed and another 2.5 million others displaced.
Khartoum had opposed any significant UN role in Darfur, arguing it would be a violation of its sovereignty and could worsen the situation.