The Rossoneri have fallen four points adrift of leaders Juventus after a surprise stalemate in Palermo.
Milan needed a victory if they were to keep the gap from Juve at two points, but were forced to do without the suspended Alessandro Nesta, while Alessandro Costacurta was able to play despite suffering from a shoulder problem. Hernan Crespo marked his 200th Serie A appearance in the Stadium where he scored his first official goal for Milan in November's Coppa Italia tie. The second leg of that fixture is next week.
Palermo brought back the system that proved so successful in the 3-0 win over Cagliari, with Franco Brienza and Lamberto Zauli supporting Luca Toni. Eugenio Corini and Fabio Grosso also returned to the squad after a one-match ban, but Simone Barone was suspended.
Andriy Shevchenko and Toni had early chances, Dida at full stretch to capture the Italian's low drive. Kaka then struck a chip just over the bar, while Milan just about managed to clear a Corini free kick.
Gennaro Gattuso celebrated his 27th birthday, but marked it with a yellow card for a foul on Zauli.
Costacurta may be 38 years old, but he proved decisive with a smart challenge on Toni in the area as he was preparing to turn.
Palermo could not have closer to an opening goal than on 33 minutes, as Dida flew to palm Stefano Morrone's rising drive out of the top corner with some difficulty.
Moments later the action moved to the other end, where chaotic defending on Crespo and Shevchenko saw Gattuso's effort deflected out for a corner.
The second half started on a similar vein, as Dida rushed off his line to pluck the ball off Toni's feet after a defensive error. Soon after Paolo Maldini had to fling himself at Zauli's angled drive following good work down the left flank.
Matteo Guardalben got behind a powerful Shevchenko free kick, while the Ukrainian set up Kaka with a delightful first touch, but the ball squirmed away from the Brazilian at the crucial moment.
Guardalben was forced into a tricky save on Shevchenko's swerving free kick and there were no Milan players ready to tap in the loose ball.
Palermo introduced Mario Alberto Santana to give more creativity in midfield and he had a good chance soon after stepping on to the field, but couldn't keep his shot down.
The Rossoneri were slowly beginning to increase the pressure and on 65 minutes Kaka held off a shirt tug from Grosso to get his angled drive in and Guardalben fingertipped it an inch past the upright.
The Palermo goalkeeper was again called into action on a deflected Andrea Pirlo free kick, then at the other end Toni's header turned Fabio Grosso's taut cross just wide.
Toni attempted a bicycle-kick when a turn and volley might have been better, but Milan were improving with time and a defender charged down Kaka's diving header.
The Stadio Barbera did not bring Crespo luck this time, as he made way for Jon Dahl Tomasson in the final ten minutes. Another substitute, Clarence Seedorf, wasted a golden opportunity to grab the win when he fired Shevchenko's pass over the bar with only the 'keeper to beat.
The Dutchman was more accurate soon after, but Cristian Raimondi did well to charge down the fierce shot, then one of his scissor-kicks was off target.
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