Leaders managed to reach a compromise
Under a deal reached at talks in Australia, the leaders agreed to set up a three-member committee to decide possible action, based on the findings of the group's election observers deployed in the country.
Hours after the deal had been announced, police in Zimbabwe broke up a meeting between Morgan Tsvangirai, leader of the opposition Movement for Democratic Change (MDC), and foreign diplomats.
They had been in the middle of discussing food shortages in the country when officers went in and declared the gathering illegal.
'Credible outcome'
The three-member Commonwealth committee, or troika, is made up of Nigerian President Olusegun Obasanjo, his South African counterpart Thabo Mbeki and Australian Prime Minister John Howard.
Analysts say President Robert Mugabe is likely to be pleased with the deal as Nigeria and South Africa have in the past opposed sanctions on Harare.
More voices from ZimbabweA statement from the summit in Coolum, Queensland, says possible measures against Mr Mugabe's government range from "collective disapproval to suspension", if the poll is not free or fair.
Mr Howard said it had not been easy to reach a deal which was a "quick, sure and fair mechanism".
"I think it's a credible outcome for the Commonwealth," he added.
'Suspend Zimbabwe'
Significantly, Zimbabwe had been party to the agreement, President Obasanjo told the BBC.
"Frankly, and without any feeling of 'oh, I have lost out or I have won', there's no winner, no loser. The consensus agreement we have reached, we are all the better for it," Mr Obasanjo said.
But British Prime Minister Tony Blair said the summit ought to have gone all the way.
"The case for suspending Zimbabwe now, I think, is very plain," Mr Blair said.
Zimbabwe's Information Minister, Jonathan Moyo, described Britain's stance as "disgraceful", when he made an impromptu appearance at the summit.
President Mugabe himself has reportedly called on Mr Blair to keep his "pink nose" out of Zimbabwe's affairs.
Despite the summit's condemnation of violence in the run-up to the election, the statement refrained from blaming Mr Mugabe or his Zanu-PF party for it.
MDC spokeswoman Sekai Holland told the BBC the opposition was disappointed.
It had hoped for action, not words, as Mr Mugabe had flouted all previous agreements and instituted a regime of violence against opposition members and their leaders.