The migrant crisis is also high on the agenda, with divisions among member states over how to solve the crisis.
The talks in Brussels are aimed at determining if there is a way Britain can remain in the 28-member bloc.
British prime minister David Cameron has a list of demands for reform he wants the European Union to agree to.
Among those are progress on immigration with the EU, restrictions on other EU nationals getting benefits in Britain and changing child-benefit rules.
European leaders want to keep Britain in the EU despite the obstacles to a deal on membership.
Mr Cameron says he is ready to reject any deal if it fails to meet any of his demands.
"It's going to be hard. I'll be battling for Britain. If we can get a good deal, I'll take that deal, but I will not take a deal that doesn't meet what we need. I think it's much more important to get this right than to do anything in a rush. But with goodwill, with hard work, we can get a better deal for Britain."
European Council president Jean-Claude Juncker says he is confident a deal will be reached.
"We have to sort out a certain number of questions among those, and I'm convinced that Britain will be a constructive and active member of (the) European Union."
But French president Francois Hollande says any accommodation of Mr Cameron's demands must not undermine the Union as a whole.
"Great Britain must stay in the European Union. That is what I want. But at the same time, the Union must be able to advance. No country should have the right to veto. No country must be exempt from common rules or common authorities."
David Cameron hopes to return to Britain with a reform package he can put to the British people in a referendum in June and keep the country in the European bloc.
Meanwhile, leaders are also discussing the migrant crisis as more and more countries in the bloc reimpose border controls.
Germany backs a strategy for Turkey to curb the flow of migrants.
But four sceptical Eastern European countries have proposed a fallback policy of ring-fencing Greece to stop migrants they expect to land there from proceeding to other EU countries.
It comes as Austria says it will go ahead with daily caps on migrants, a policy that breaches EU regulations.
Greek prime minister Alexis Tsipras has called for unity across the bloc.
"The solution of the refugee crisis is not building fences and promoting racism in Europe. The future of Europe is not walls and xenophobia. And Europe cannot be rules for some and a la carte for others."
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