City's 1-1 draw with Real Madrid at the Etihad Stadium on Wednesday condemned the Premier League winners to elimination before the knockout stages for a second successive season.
As with last year, City faced a tough group, drawn against the might of Real as well as two other domestic champions in Borussia Dortmund and Ajax.
But with City boasting plenty of world-class talent of their own, Zabaleta is puzzled as to why they have failed to win any of their first five Group D games.
The Argentina international said: "We are obviously a bit disappointed about the result as we needed three points.
"It was our last chance to get close enough to Real Madrid and Borussia Dortmund, and play the last game with an option to go through to the next stage.
"Now, the chance has gone and it's hard to understand.
"It's the second year in a row that this has happened - it's hard to see, when you see the players that we have.
"The group was very tough. Borussia Dortmund did very well and maybe Real Madrid were the second best team in the group and that's why we didn't qualify for the next round."
City remain bottom of the group with just three points and will now battle it out with Ajax for a consolation spot in the Europa League.
To achieve that they will need to win their final game at Dortmund, who are confirmed as group winners, and hope that Ajax do not beat Real at the Bernabeu.
There is a feeling among some observers that City might now be better served in their quest to retain the Premier League title by being out of Europe altogether.
But Zabaleta feels they must make the most of any opportunity to play on the continental stage.
The 27-year-old said: "We expected more. When you see the squad that we have, you want to try to go through to the next round.
"Now we have a chance to qualify for the Europa League.
"It is always good to play in Europe. Tha t was not our target at the beginning but now we need to go to Germany and beat Borussia Dortmund and wait for the result between Real Madrid and Ajax."
City needed to beat Real to retain any hope of reaching the last 16 but their hopes were almost killed off in the opening half-hour as Real frequently tore through their defence.
Karim Benzema struck after 10 minutes and the visitors had a handful of other gilt-edged chances as City again looked uncomfortable playing in a 3-5-2 formation.
City finally began to gain a foothold in the game after manager Roberto Mancini reverted to flat back four and they equalised with a second-half Sergio Aguero penalty following Alvaro Arbeloa's sending off.
Aguero went close to a second but was denied by a brilliant point-blank save from Iker Casillas and the hosts failed to take several other chances.
Zabaleta, who began the game as a right wing-back but moved to left-back in the reshuffle, said: "We star ted the game really slowly with some defensive problems, and then we changed to 4-4-2 as we felt more comfortable with that system.
"We conceded three or four chances at the beginning of the game and that cost us a goal.
"In the second half we showed a different spirit, created more chances and maybe deserved a second goal - but we didn't get it."
City showed similar spirit to come from 2-0 down to draw their previous game against Ajax, when again they were left to rue defensive lapses.
They must quickly put their disappointment behind them as they travel to title rivals Chelsea in the Premier League this weekend.
City are waiting on an update on the fitness of captain Vincent Kompany, who could be doubtful for the trip to Stamford Bridge with a knee injury.
Kompany was hurt in a challenge with Cristiano Ronaldo 10 minutes from time against Real but battled through to full time.
He underwent lengthy treatment after returning t o the dressing room and was due to have further assessment.
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