He was probably still working on a way to compromise Snowden while leaving all of the users still secure, and the FBI was probably just impatient. But that's pure speculation on my part.
From what I can gather in the released order, the FBI didn't actually ask for Snowden's communications to be compromised anyways, they wanted the "connection information" (i.e. IP addresses, any metadata). I don't understand why Levison didn't think he could comply with that, unless it was completely impossible for him to implement.
But he never told the FBI it was technically impossible, he told them that he would not (as opposed to "could not") do it.
