The Arab League ministerial follow-up committee on the peace process "sees that the direction of talks has become ineffective and it has decided against the resumption of negotiations," Mussa said.
The ministers also decided "to bring up the issue of Israeli settlements again to the Security Council," wanting the UN body to adopt a resolution "that confirms ... the illegal nature of this activity and that would oblige Israel to stop it."
They also called on the United States, which has vetoed resolutions against Israel in the past, not to obstruct such a move.
Mussa said Arab ambassadors at the United Nations were told "to demand an emergency meeting of the Security Council."
Earlier on Wednesday, Mitchell said in Cairo that, "in the days ahead, our discussions with both sides will be substantive, two-way conversations with an eye towards making real progress in the next few months on the key questions of an eventual framework agreement."
The two sides need "to rebuild confidence, demonstrate their seriousness and hopefully find enough common ground on which to eventually relaunch direct negotiations," he said after meeting Egyptian President Hosni Mubarak.
Mitchell had returned to the region on Monday following acknowledgment by Washington that it had failed to secure a new Israeli settlement freeze, which signalled the end of direct peace negotiations and a return to indirect talks.
He met Israeli Prime Minister Benjamin Netanyahu and later with Abbas.
Mussa said after meeting Mitchell that he hoped Washington would succeed but that Israel stood in its way.
"We must reach results. We should not wait for an Israeli change in policy. We should not continue just hoping or running after a carrot," Mussa told a news conference with Mitchell.
"President (Barack) Obama -- we want him to succeed," he said, blaming Israel for the stalemate.
Qatari Foreign Minister Sheikh Hamad bin Jassim bin Jaber al-Thani, who chaired the Arab League meeting, accused the United States of adopting the Israeli viewpoint.
"There is a real problem facing the peace process especially given that the American mediator has abandoned its pledges and adopted the Israeli point of view," he said after the meeting.
"We know there will be an American veto if we go to the Security Council but this veto will not stop us from going," said Sheikh Hamad, who is also Qatar's prime minister.
In the West Bank, an official said Mitchell had suggested during a Tuesday meeting with Abbas that the US administration hold "parallel talks with the Palestinian and Israeli sides separately, and not negotiations."
"What is discussed with each side will not be divulged to the other, but the aim is for the US administration to form an idea of what the two parties want with a view to drawing up a strategy to relaunch direct negotiations at the time it deems appropriate," the official said.
The Palestinians insist on a freeze as a precondition to resuming the US-brokered direct peace talks, launched September 2 and suspended three weeks later with the end of an Israeli moratorium on settlement building.
Abbas was to brief the committee on US "ideas" to salvage the peace process that Mitchell had brought, said spokesman Nabil Abu Rudeina after Tuesday's talks.
The Palestinians demand US guarantees ensuring "a complete halt to settlement in the West Bank and east Jerusalem," he said.
They also call for US recognition of a Palestinian state based on Israel's borders of before the 1967 Six-Day War in which the Jewish state seized the West Bank, the Gaza Strip and east Jerusalem.
Meanwhile, senior Hamas strategist Mahmud Zahar dismissed the Arab League meeting as nothing more than "a cover for the failure" of Abbas's Palestinian Authority, warning it will "be used for more expansion of settlements."