Mr Chissano, who performed a rare act in Africa by voluntarily retiring from office earlier this year, is a close friend of Mr Mugabe, and was best man at the Zimbabwean leader's 1996 wedding to his second wife, Grace. He is also an astute negotiator, and his perseverance in dialogue helped end the brutal 16-year civil war in his own country in 1992.
However, it is uncertain whether Mr Chissano will be able to persuade Mr Mugabe to drop his intransigence and speak to the opposition.
As Mr Chissano's appointment as mediator was being announced, Mr Mugabe was pouring scorn on all suggestions that he should talk to the opposition. "No, sir, I do not want to meet you," Mr Mugabe mockingly said in reference to the main opposition leader Morgan Tsvangirai, when he addressed party supporters at a ceremony to honour fallen heroes. "We tell all those calling for such ill-conceived talks to please stop misdirecting their efforts," Mr Mugabe said in reference to mediation efforts by the AU and South African President Thabo Mbeki.
Mr Mbeki's government has prescribed talks with the opposition as a condition Mr Mugabe must meet before it releases part of a $1bn (£557m) loan he has sought from South Africa to pay for urgent fuel, electricity and food imports.
Mr Mugabe has ruled out talks with Mr Tsvangirai, accusing the Movement for Democratic Change leader of being a puppet of Britain. On Monday, Mr Mugabe said that it would be better for him to speak to Tony Blair directly than waste time speaking to his "puppet".
The Foreign Office in London welcomed the AU initiative. "We welcome the fact that a number of African leaders are now working constructively to pressure Mr Mugabe to end the crisis in Zimbabwe through internal dialogue and changes in policies," said a Foreign Office spokesman.
Despite Mr Mugabe's reference to talks with Mr Blair in his typically abusive fashion, it is understood that he is seriously interested in such talks to end his international isolation.
If he does not get the loan that he has requested from South Africa, analysts say that his country faces total collapse. Zimbabwe has run out of fuel and basic foodstuffs and is suffering from three-digit inflation.
A South African government spokesman, Joel Netshitenze ,said the cabinet had "agreed in principle" to help Zimbabwe with a major bail-out but details are yet to be concluded. One South African opposition party, the Freedom Front, has said any South African loan to Zimbabwe should be extended on one condition only: the departure of the 81-year old President.Reuse content