President Kibaki has withdrawn his controversial nominations to four constitutional offices.
The President said that whereas he acted within his constitutional mandate in making the nominations, the matter was of great national importance.
"Following extensive consultations with a large section of Members of Parliament in order to ensure that national interest remains paramount, I reiterate that both the Legal and Justice Committee of Parliament as well as the Committee on Finance and Trade concluded that I have acted within my constitutional mandate in the execution of the nominations," he said at the Kenyatta International Conference Centre, Nairobi.
"However, considering the importance of the office of the Chief Justice as the head of the Judicial Arm of the Government, I have considered all the concerns expressed in regard to this nomination and I have concluded that it is beneficial that the nomination to fill this office, during the transition period, is also done through the Judicial Service Commission," said President Kibaki.
"In regard to nomination of the Attorney General, I have invited the Prime Minister for further consultations.
"I have also decided that the positions of Director of Public Prosecutions and Controller of Budget should be advertised through the Public Service Commission," he said.
President Kibaki said the move will "enable us to move forward with the implementation process of the Constitution".
He appealed to Kenyans to remain united as we the country forges ahead with process of implementing the constitution.
In a rejoinder, Prime Minister Raila Odinga welcomed the move to seek consensus on the nominations.
He said President Kibaki had shown "courage" in withdrawing his nominees to the Chief Justice, Attorney General, Director of Public Prosecutions and Controller of Budget.
"I want to begin by paying tribute to President Mwai Kibaki for his courage in withdrawing the controversial nominations and all Kenyans are pleased that wise counsel has prevailed," said Mr Odinga during a news conference at his Shell and BP House, Nairobi.
He said that Kenya's reform project would never go asunder as long as good faith, constant consultations, willingness to compromise as outlined in the National Accord and national values under the constitution.
Mr Odinga, however, expressed reservations that the Public Service Commission, which the President had indicated should lead the process of nominating the next DPP and Controller of Budget had not been reconstituted as envisaged by the new law.
He suggested that a competent panel be put in place to take over the process.
"The current Public Service Commission has not been reconstituted in accordance with the new constitution. That is why we are saying that it only provides the secretariat, to do things like advertising of the jobs but the interviews should be conducted by an independent panel of experts,” Mr Odinga said.
Gichugu MP Martha Karua said onTwitter: "Katiba (Constitution) wins round one as Kibaki withdraws the controversial four nominees."
On Monday, Attorney General Amos Wako told a court that the nominations were improper.
A senior state counsel, Ms Wanjiku Mbiyu, said the Judicial Service Commission was ignored when the President nominated Justice Alnashir Visram to succeed outgoing Chief Justice Evan Gicheru.
“The Attorney General’s position is and has been JSC was not involved in the appointment as required under the Constitution,” Ms Mbiyu told a three-judge bench.
Last week, House Speaker Kenneth Marende declared the nominations illegal and referred the matter back to the principals to restart the process.
Mr Marende said President Kibaki did not follow the law in nominating Mr Justice Alnashir Visram to be Chief Justice, Prof Githu Muigai (Attorney General), lawyer Kioko Kilukumi (Director of Public Prosecutions) and William Kirwa as Controller of Budget.
He said the President did not consult the Prime Minister as envisaged by the constitution and the National Accord.
On Friday, President Kibaki, however, said he had acted within his "constitutional mandate" in making the nominations.
"In my actions as your President, I have at all times acted in accordance with the Constitution and the Laws of Kenya, he said.
The President said he will await the decision of the constitutional court over the matter.
But Mr Odinga praised Mr Marende's ruling saying the Speaker had upheld the Constitution when making his ruling.
“The Speaker made that ruling in line with the Constitution and in that (ruling), there is no winner or loser. The winner is Kenya. Nobody should brag that I won and they lost. Kenya won,” the PM said.
A three judge bench comprising of Justices Kalpana Rawal, George Dulu and Luka Kimaru adjourned the hearing of the case to March 2.
Pro-Kibaki MPs vow to overturn Mr Marende's ruling saying he was biased failed to materialise in Parliament.