The council was also considering a controversial proposal to put Iraq's oil-rich economy under US control for at least one year.
The US-backed draft also proposes cutting the proportion of Iraq's oil sales set aside to compensate Kuwait for a 1990 invasion. It comes one month after US tanks rolled into Baghdad and Saddam Hussein's regime collapsed.
Anti-war council members including France and Russia are expected to challenge some of the draft's proposals.
Britain's ambassador to the UN Jeremy Greenstock said the initial discussions in the Security Council over the draft had taken place "in a constructive atmosphere" and he had sensed a "wish to look forward, not back" among council members.
The ambassador of Germany, whose country joined France and Russia to oppose the US-led war, agreed.
"The general trend of discussion is that this draft does not fight the fights of the past," Gunter Pleuger said.
The meeting at the United Nations came as Iraqi opposition leaders meeting in Baghdad laid out plans for a new democratic government, insisting that officials from Saddam's Baath party be banned from political life.
In northeastern Iraq, US officers said their forces had taken over all the checkpoints held by the armed Iranian opposition group, the People's Mujahedeen, as part of a previously arranged ceasefire agreement.
Senior officers said that a US army general had held disarmament talks with leaders of the group.
Despite the positive comments at the opening of the Security Council talks, the US bid to have UN sanctions lifted faces a diplomatic challenge from other Council members, reflecting a damaging pre-war showdown at the world body.
Russia particularly has insisted that the United Nations must declare Iraq free of weapons of mass destruction -- in line with previous UN resolutions -- before the sanctions can be lifted.
This threatens to embarrass the United States, which has yet to turn up any of the banned weapons that it said Saddam's regime was developing, and which it used to justify going to war.
France insisted on a central UN role in rebuilding Iraq, amid concern that the United States will minimalise the world body's influence in reconstruction efforts and reserve lucrative contracts for US firms.
French President Jaques Chirac said his country would be "constructive" during the UN discussions, but did not elaborate.
"At this stage I confirm France's willingness to broach discussions on the future of Iraq in an open and constructive spirit," Chirac said while on a visit to Poland.
Washington has insisted that a long UN debate is not required.
"The president wants the Security Council to act quickly and there is no need for a lengthy debate," White House spokesman Ari Fleischer said.
Washington's UN ambassador John Negroponte said he would submit a draft resolution calling for the lifting of sanctions and for oil revenues to be put in a special fund to be controlled by US-led occupying forces for 12 months.
Iraq has the world's second largest known oil reserves.
Negroponte said the United States wants the resolution adopted by June 3, when the current six-month phase of the UN-run oil-for-food programme expires.
The draft would immediately lift all UN sanctions imposed on Iraq after its invasion of Kuwait in August 1990, except the arms embargo.
It would also set up an Iraqi Assistance Fund, to meet the humanitarian needs of the Iraqi people, for economic reconstruction, for the "continued disarmament of Iraq" and other purposes.
State Department spokesman Richard Boucher promised transparent management of the country's potentially vast oil revenues if the UN council approves the draft.
"How this money can be used to benefit the Iraqi people, by the Iraqis, with transparency, and in consultations with the international finance institutions and others is fairly well specified in the resolution," he said.
But in Moscow, US Assistant Secretary of State Kim Holmes failed to convince Russia Thursday to support lifting the sanctions.
Russian Foreign Minister Igor Ivanov said sanctions that blocked humanitarian aid should be removed, but insisted that a complete end to the economic blockade must take place in line with existing UN resolutions.
The 15 UN Security Council members are due to hold a weekend retreat with Secretary General Kofi Annan and to hold new consultations on Iraq on Thursday.
Meanwhile, Iraqi leaders and US officials in Baghdad late Thursday held their first talks aimed at forging an interim government since a new US official was named to run the war-battered nation.
It remains unclear how long an interim government would run the country before an election is held, or when the United States and its coalition allies would be ready to hand over power - Sapa-AFP
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