Well here's what Michael Pillar had to say on this very topic in his book "Fade In - The Making of Star Trek: Insurrection":
"On Deep Space Nine, the series which chronicles the continuing adventures of Starfleet, the Federation was involved in a desperate war for survival against the evil Dominion. It would be nice, I felt, to be consistent with the TV show. Picard and the Enterprise might be involved in combat when we find him. I called Ira who has guided the series for the last several years. "I know this is a hard question to answer," I said. "But where do you think the Federation will be next Christmas when this movie comes out?"
Ira, who enjoys exploring the darker side of Twenty-Fourth century life, laughed and answered, "This might surprise you, knowing me. But I think things will be looking up for the Federation. The war will linger on but it'll reach a stalemate probably by then and our stories will be more hopeful." It made sense. Deep Space Nine would be in the middle of its last season --the decision had been made long ago that it would run seven seasons --and certainly they'd want to end the series on an uplifting note.
So, it seemed combat wasn't the answer for Picard and as I sat there, I told myself it was probably just as well. Rick was not enthusiastic about the Dominion War plotline on Deep Space Nine and I knew he'd be reluctant to bring it to the big screen even as a tangential element. So, I decided Picard would be awash in mundane details of duties heaped upon him by Starfleet Command as the war was winding down. It would be a far more subtle 'regeneration' for our Captain but I thought I could pull it off and I thought I could do it with humor which would be more in keeping with the tone of the film."