But they said talks were continuing, with the two sides working on further revisions in the hope the resolution could be circulated to the board of governors of the UN nuclear watchdog, the International Atomic Energy Agency (IAEA) later Monday.
Talks are being held "at the highest level. It's all in the national capitals," a Western diplomat said.
Negotiations at the Vienna-based IAEA hit a snag last week over US demands that a "trigger mechanism" for asking the UN Security Council to step in if Iran continues to violate atomic safeguards agreements be included in the resolution, according to diplomats.
The IAEA 35-nation board had met Thursday and Friday on how to respond to a report from the nuclear watchdog stating that Tehran has violated nuclear safeguards for the past 18 years. The board is due to resume the meeting on Wednesday.
The United States has dropped demands to take Iran immediately before the Security Council, which could impose sanctions. But Washington still wants a guarantee that the Council will be alerted if Iran's violations continue.
The United States "needs something that says the issue is going to be sent to the Security Council," a Western diplomat said.
Talks on how to deal with Iran have stalled as Washington takes a hard line while Europe's big three -- Britain, France and Germany -- argue that antagonizing Tehran could prompt it to cut off cooperation with the IAEA, a Western diplomat said.
The draft resolution, the third version by the so-called Euro 3 since last week, says that in the case of "any further serious Iranian failures, the (IAEA) Board of Governors would meet immediately to consider all options at its disposal," according to a copy obtained by AFP.
Diplomats said the problem is that direct mention of the Council would infuriate Iran, which struck a deal with Britain, France and Germany on October 21 to cooperate with the IAEA.
In return, Iran was promised the issue would not go to the Security Council.
Iran has already threatened to withhold cooperation if the IAEA resolution is too strong.
The Euro 3 diplomats fear that Iran could go back on its promise to allow more intrusive inspections of its nuclear sites and as well on its current halt in uranium enrichment.
A diplomat close to the negotiations said "you don't have to directly mention the Security Council but need, for the Americans, some formulation that makes it clear the issue will be sent there."
Iran has won backing for its stance however from states from the non-aligned movement (NAM) on the IAEA board.
One NAM delegate told AFP: "The IAEA has the necessary authority to consider this matter. Let's put our house in order and say the agency is the most relevant body to decide on this matter."
In any case, the United States and the Euro 3 apparently reached agreement on another contentious point, that of declaring Iran in "non-compliance" with the nuclear Non-Proliferation Treaty (NPT), wording that implies sending the issue to the Security Council.
They have accepted instead to say the IAEA "strongly deplores Iran's past failures and breaches of its obligations to comply with" NPT safeguards, according to the draft resolution.
The United States considers this synonymous with non-compliance and Iran has not objected to the wording, diplomats said.
The IAEA report on Iran said Tehran made small amounts of plutonium and enriched uranium in its hidden program but that there was so far no evidence it was working on making nuclear weapons.
The United States, which has branded Iran part of an "axis of evil" along with North Korea and Saddam Hussein's Iraq, disagrees and has said Iran is seeking to develop the bomb.