The Organization for Security and Cooperation in Europe (OSCE), which took part in the talks in Minsk, Belarus, along with envoys from Ukraine and Russia, said rebel delegates had not been ready to discuss crucial points of a peace plan.
"In fact, they were not even prepared to discuss implementation of a ceasefire and withdrawal of heavy weapons," the OSCE said in a statement.
It said rebels had instead pushed for a revision of a ceasefire plan agreed on in Minsk last September.
The terms of that 12-point protocol have been repeatedly violated, but Kiev and foreign governments see it as the only viable roadmap to end the nine-month-long conflict in which more than 5,000 people have been killed.
The rebels rejected the OSCE's assessment, saying they were ready for dialogue, but unwilling to accept an "ultimatum" from Kiev so long as government forces continued shelling civilian areas, separatist news service DAN quoted rebel envoy Denis Pushilin as saying.
Ukrainian President Petro Poroshenko held a three-way phone conversation with German and French leaders Angela Merkel Francois Hollande in which they expressed their disappointment, German government spokesman Steffen Seibert said.
"The separatists are urged not to block the talks. Russia must, in this regard, also influence the rebels," he said.
The New York Times reported on Sunday that President Barack Obama's administration was taking a new look at providing Ukrainian forces with defensive weapons and equipment in the face of the rebel offensive.