"I believe that the bad governance has led to part of what we see today in the region," the former secretary-general of the Arab League and ex-Egyptian foreign minister said.
"In so far as Daesh, or ISIS, is concerned, it is but a demonstration on wrong polices: Had there been no wrong policies, violent policies, bloody policies by the previous government in Iraq, perhaps Daesh wouldn't have that chance."
Moussa added that Daesh—another acronym that does not recognize Isis's adherence to Islam—offered young men money and, in some cases, the promise of a wife and accommodation, in order to attract recruits.
Read MoreISIS leader killed, wife captured by US forces in Syrian firefight
WEF Managing Director Espen Barth Eide, who was part of the panel discussion, agreed that there was a power "vacuum" in the region and for some young people, joining the terrorist group appeared the only option.
"One element is the collapse of all systems that were not able to deliver, that creates a vacuum," he said.
"People looking for solutions and for some young people, the only solution presented is the false allure of Daesh or ISIS, which is not only a product of frustration, but also a quest for identity and meaning and purpose in a world that seems chaotic for a lot of people."
Reuters reported on Friday that ISIS had advanced further east in Iraq, taking control of Ramadi and pushing towards Fallujah. In neighboring Syria, the terrorist group has extended its control around the ancient city of Palmyra.
The helpfulness of U.S. aid to Iraq in fighting ISIS is under debate. During the panel discussion on Friday, Saleh al-Mutlaq, deputy prime minister of Iraq, said that a political solution must be reached to go along with any military action, so citizens "feel there is hope" and "justice."