The resolution is expected to be the first of many UN discussions on the issue of Iran’s refusal to stop it uranium enrichment program.
The 15-member Security Council has been meeting behind closed doors in New York to decide on a diplomatic strategy against Iran.
France and Britain have circulated a resolution that would legally oblige Iran to stop its uranium enrichment program but does not call for immediate sanctions.
The resolution’s text, worked out in close consultations with Germany and the United States, invokes Chapter 7 of the UN Charter, which can authorise economic sanctions or even as a last resort the use of force in cases of threats to international peace and security.
It says "Iran shall suspend all enrichment-related and reprocessing activities, including research and development, to be verified by the IAEA (International Atomic Energy Agency), and suspend the construction of a reactor moderated by heavy water".
It was submitted to the 15-member council during closed-door consultations on the report submitted last Friday by IAEA head Mohamed ElBaradei which concluded that Tehran had failed to comply with UN demands.
Iran insists that its nuclear program is peaceful and has rejected demands to end its uranium enrichment.
Sanctions on hold
The Franco-British text does not call for sanctions at this stage but said the council would "consider such further measures as may be necessary to ensure compliance with this resolution and decides that further examination will be required should such additional steps be necessary".
It stresses that "full verified compliance by Iran, confirmed by the IAEA Board, would avoid the need for such additional steps".
The draft also calls on "all states to exercise vigilance in preventing the transfer of items, materials, goods and technology that could contribute to Iran's enrichment-related and reprocessing activities and missile programs".
Russia and China, who have veto power on the Security Council, are strongly opposed to sanctions while the United States says it favours a diplomatic solution while not ruling out military action.
The resolution says Mr ElBaradei will be given an unspecified number of days to report on Iranian compliance both to the IAEA Board of Governors and the Security Council.
France's UN Ambassador, Jean-Marc de La Sabliere, however told reporters that Iran was expected to comply "no later than early June".
His US colleague, John Bolton, also spoke of a "very short period of time" for Iran to comply, adding "the key lies in Iran's hands".
"We are going to support this text ... We hope for unanimity in the council but not unanimity at any price," he added.
The draft emerged a day after senior officials of the council's five veto-wielding permanent members, Britain, China, France, Russia and the United States, plus Germany failed to agree on a united response to Iran's defiance at a meeting in Paris.
Tehran argues that it has the right as a signatory to the Nuclear Non-Proliferation Treaty to conduct enrichment.
Iranian Foreign Minister Manuchehr Mottaki insisted Iran would "absolutely" not suspend uranium enrichment work, and he predicted China and Russia would block UN sanctions.