Okay, here's my take on what I think happened:
Kaka never really wanted to leave AC Milan for anyone but with the kind of money we were offering for him, Berlusconi told him that they couldn't afford not to sell him to us. Kaka accepted this and became open to the idea of joining us - if he wasn't then there's no way on earth it would've got to the stage where we sent people over there to negotiate personal terms.
In the meantime, Milan had stupidly let the cat out of the bag regarding the possible transfer. This in turn led to mass protests by Milan's Ultras outside Kaka's apartment. Seeing these protests, Berlusconi realised there'd be a furious reaction from the club's fans if the deal went through and decided the best thing to do would be to shelve any plan to sell him for the time being, providing Kaka was in agreement. Witnessing the protests first-hand from his apartment window, Kaka had no hesitation in agreeing with Berlusconi and that's when the whole thing fell through.
So you could argue that both Kaka and Milan bottled it. Personally, I don't like to think of either club or player bottling it - more that fan power initiated a climbdown. It's no coincidence that when Kaka was sold to Real Madrid a few months later that the impending transfer wasn't announced until Kaka was thousands of miles away on Brazil duty, (he even had his Madrid medical in Recife) so there was no chance whatsoever of the Ultras being able to do anything about it, unlike the previous occasion when they camped outside his apartment.