At an informal meeting among the 15 UN Security Council members on Thursday, US and British officials read from a text of "concepts" for the resolution. The paper was based in part on two earlier rounds of talks this month on Iraq's future when the US-led occupation is to end on June 30.

A council diplomat said the resolution, not yet circulated, was expected to call for a "full transfer of sovereignty" on June 30 to an Iraqi caretaker government, which would then set its own limitations.

Such a government, for example, could not adopt any long-term legislation or agreements, except on a pact to alleviate the country's debt.

But the United States and Britain argued against a limited mandate for how long foreign troops would stay in Iraq, saying this might encourage insurgents and become a factor in elections that are to be held in January, the envoys said.

France, Germany and Pakistan had advocated setting a date for ending the mandate of a US-led multinational force, which could be extended by an Iraqi government elected in January. The United States instead suggested a review without a target date, the diplomats said.

But the Bush administration agreed with France, Germany, Russia and others that Iraqi security forces could refuse to take part in operations ordered by American commanders.

US Deputy Secretary of State Richard Armitage told a Senate Foreign Relations Committee on Tuesday that Iraqi troops, although under US command, would be permitted to "opt out" of a military operation.

The resolution would also state that Iraq would have control over its oil revenues. But it would keep in place an international advisory board, which audits accounts to encourage investors and donors that their money was being spent free of corruption, the envoys said.

Under a May 2003 Security Council resolution adopted after the fall of Saddam Hussein, all proceeds of Iraq's oil and gas sales were deposited into a special account called the Development Fund for Iraq, controlled by the occupation Coalition Provisional Authority.

AFP adds: Britain has shelved plans to send 3,000 more troops to a volatile part of southern Iraq due to worries about political and public opposition at home, a report said on Friday.

The reinforcement -- which another report had predicted would be formally announced next week -- has been put off again by Prime Minister Tony Blair due to concern about the reaction, the Daily Mirror reported.