The dictator was widely expected to announce his departure from power after the ruling party, Zanu-PF, removed him as leader and warned that he faces impeachment if he does not step down voluntarily.
In a rambling address to the nation on the state broadcaster, ZBC, he said the country needed to move forward and resolve the differences "between the generations".
He said he will preside over the party's congress in December where they will "collectively start process that returns our nation to normalcy".
"We cannot be guided by bitterness or vengeful both of which would not make any better party members or any better Zimbabweans", he added.
But the head of the influential war veterans association, Chris Mutsvangwa, said plans to impeach Mr Mugabe would go ahead as scheduled and said the people would take to the streets of the capital Harare on Wednesday.
The address came after talks with the head of the armed forces, General Constantino Chiwenga who had placed him and his wife Grace under house arrest.
Grace Mugabe, a hugely divisive figure in the country accused of corruption and abuse was fired as the head of the party’s women’s section.
She was guilty, it was alleged, of “preaching hate, divisiveness and assuming roles and powers not delegated to the office”. Her critics have claimed that she had been manipulating her aged husband and was positioning herself to succeed him.
Former vice-president Emmerson Mnangagwa, who many believe is due to be installed as the new leader, had been sacked recently by Mr Mugabe at the instigation, it is claimed, of Grace Mugabe was appointed Zanu-PF leader and is set to head a interim administration which will include members of opposition parties including Morgan Tsvangirai who had previously been in a power sharing government with Mr Mugabe.
Many people had expected Mr Mugabe to resign as a source close to him reportedly told the Reuters news agency that he was writing his resignation speech.
He had previously refused to write the statement in conjunction with senior military officers and party officials and has been described by aides as being in a highly emotional state, with mood swings between defiance and depression.
The indications during days of negotiations had been that Mr and Mrs Mugabe would be allowed to go into exile after he stood down as President. But some Zanu-PF officials maintained today that Ms Mugabe may face prosecution.
Obert Mpofu, the minister of home affairs, who chaired the central committee meeting which sacked her and her husband, said “Mugabe’s wife and her close associates have taken advantage of his frail condition and abused the resources of the country.”
Emmanuel Fundira, a Zanu-PF MP, added : “it is only right that corrupt and rotten people should be punished. There are resources which have been taken away from this country. Naturally, the laws will follow up and make sure that all those people are brought to book.“
It was an indication of how far Mr Mugabe’s popularity had fallen that the news of his sacking as party leader was greeted with prolonged applause, singing and dancing by senior figures of Zanu-PF— a scene which would have been unthinkable even a few weeks ago when the President still bestrode the power structure of this country as he had done for the last 37 years.
The President, according to those familiar with the talks, has been desperately trying to cling on to power, insisting that he remains the constitutional head of state and demanding immunity from prosecution for him and his family.
But, at the end Mr Mugabe was an isolated figure without any effective support. Hundreds of thousands of people took to the streets of Harare on Saturday on a overwhelming show of demand that Mr Mugabe and his 52 year old wife, given the epithets “ Gucci Grace” and “DisGrace’ by her many critics for her lavish spending on luxuries, must go. His party, including the Youth Wing which had been fervent Grace loyalists, the opposition, the trade unions as well as the military are all urging him to go.
Although the mood of the crowd on Saturday was celebratory at the prospect of deliverance from Mr Mugabe’s rule rather than confrontational, there have been increasing warnings that frustration at Mr Mugabe’s failure to leave may trigger a violent reaction.
The head of the organization of veterans who fought against white rule had warned that he “would bring back the crowd to do the business” if Mr Mugabe did not step down. “We would expect that Mugabe would not have the prospect of the military shooting at people trying to defend him”, said Christopher Mutsvangwa “the choice is really his, he cannot avoid it”.
Joshua Nhamburu, one of those who had fought in that conflict, said he believed that Mr and Ms Mugabe would be allowed to fo into exile. But he added “ There will be an end to people’s patience. He has been given enough time now to make his arrangements and leave. His wife Grace, who is a thoef, is also being allowed to go. They are both lucky that they are not looking at long years in jail : but their luck may run out soon if they continue acting in this way.”
The drive to remove Mr Mugabe from Zanu-PF leadership had started on Friday with branch after branch of the party voting motions of no confidence in Mr Mugabe. On Friday evening, it has emerged, the President sought to suspend parliament. But National Assembly speaker Jacob Mudenda refused the demand and senior Zanu-PF figures began talks with opposition parties to agree on a course of action.
Innocent Gonese, of MDC-T party, confirmed that there had been discussions with Zanu-PF about impeachment when parliament seats again on Tuesday.”If Mugabe is not gone by Tuesday, then as sure as the sun rises from the east, impeachment process will kick in” he said hours before the resignation.
Mr Mugabe’s rapidly fading hopes of political survival lie with the African Union and Southern African Development Community (SADC) both of which have strong stances against military coups : a reaction to the repeated takeovers by armed forces of newly independent countries in the continent in the past.
That is the reason why Gen Chiwenga and the military hierarchy have been trying to engineer a voluntary departure by Mr Mugabe. But the appointment of Mr Mnangagwa by Zanu-PF as leader and acting President in waiting would, believe senior officers, counter accusations of a military takeover and the massive street protests would show that he was being driven out by popular will.
The original plan for Saturday’s rally had been for demonstrators to gather at the city’s Freedom Square, but soldiers on duty asked them to go on to the far bigger Harare stadium at the outskirts of the city. It was a far bigger venue, but also symbolic. This was the place where another huge crowd had gathered 37 years ago to welcome Mr Mugabe on his return from exile following independence.
Washington Chando, remembered being taken at the age of ten to the stadium that day by his parents.: “Everyone thought he was a hero. I remember people were crying with joy, but everything began to get worse after a while. I haven’t been able to find any permanent work for the last nine years, we have all had a very negative experience while people like Grace Mugabe has got richer and richer. “
There were some expressions of regret at the humiliating end of one of giants of African politics. “People would forget now that he did a lot of good for this country at one stage. He was our leader, much respected in Africa, other parts of the world” Daneil Zangaya, a teacher, reflected. “But he stayed too long and allowed himself to be surrounded by corrupt people. He will be remembered for the dad day, not the good ones. That is a shame, but no man can avoid responsibility for his actions.”
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