The failure belied hopes that an agreement would be hammered out in time for a summit meeting in Geneva this week. African countries were the most disappointed at the inability to find common ground.
Instead, on Tuesday they agreed on a compromise "Digital Solidarity Agenda" for formal endorsement by about 150 governments, including some heads of state, at the World Summit on the Information Society starting on Wednesday.
Top negotiator Marc Furrer, head of the Swiss Federal Office of Communication, said the European Union, Canadian and Japanese government negotiators had agreed to look into what a fund could do by December 2004, while African states could go ahead with funding.
"Every country sees that we need new resources to bridge the digital divide," Furrer told journalists, admitting that Western countries were sceptical about the value of another, separate international fund.
"Some want to create it and the others must at least study the fund. It was a hard fight," he added, after trying to broker an agreement during the final session of talks.
"We launched the idea of digital solidarity because we can't buy this equipment, we can't afford it"
But Senegalese President Abdoulaye Wade was adamant that African countries needed the fund to latch onto the digital revolution, even if they were ready to turn not only to governments but private companies, individuals and city authorities in the West for investment.
"We launched the idea of digital solidarity because we can't buy this equipment, we can't afford it," he told journalists.
Wade underlined that the money would be used in turn to buy equipment from companies in industrialised countries, with the aim of making a computer accessible to about 80% of families in Africa.
"It's not a unilateral gift," he added.
Furrer said negotiators had also drafted a final text for a political declaration and plan of action for the summit, which officials hope will spur political commitment to broadening access to Internet and communications technologies.
Around 12,000 people, including a few dozen government leaders are expected to attend the summit in Geneva, home to the United Nations' European headquarters.
They hope to set out a global framework so that all countries can benefit from the information age, a term used to describe the boosted flow of information and knowledge brought about by mobile telephones, Internet access and electronic media.