A newly revised draft Security Council resolution on Tuesday pledges that US-led military forces and the Iraqi government will cooperate.
The compromise clause "including policy on sensitive offensive operations" stops short of the virtual Iraqi veto over military operations that France requested on Sunday.
However, inclusion of the new language seems to have satisfied a key French concern, diplomats said, and the US has submitted the resolution for a Tuesday vote.
Earlier, the two major players in Iraq's occupation declined to include a French amendment that would require Iraqi consent for "sensitive" military actions.
But US officials were keen to have the Council pass a vote on the text on Tuesday and brokered a compromise.
France initially put forward its Iraqi veto proposal on Sunday as the 15-nation body with the handover deadline in Baghdad a little more than three weeks away.
The US and Britain had insisted the role and scope of US-led troops was to be governed by two letters of cooperation by US Secretary of State Colin Powell and Iraqi prime minister Iyad Allawi.
Speaking just moments after the release of the latest resolution draft, UN envoy Lakhdar Ibrahimi said that not all the opponents of the US occupation in Iraq were "terrorists".
He urged the new government to reach out to them for the good of the country's future.
After overseeing months of talks that helped form the interim government, Brahimi told the UN Security Council that the military could not solve Iraq's problems.
"It [US] will need to resist the temptation to characterise all who have opposed the occupation as terrorists and bitter-enders"
"The majority of Iraqis with whom we met stressed that the problem of insecurity cannot be solved through military means alone. A political solution is also required."
Ibrahimi concluded that the US "will need to resist the temptation to characterise all who have opposed the occupation as terrorists and bitter-enders".
In related news, the White House announced that US President George Bush is to meet with Iraqi interim president Shaikh Ghazi al-Yawir on Wednesday at the G8 summit.
Al-Yawir is expected to meet
President Bush at the G8 summit
The meeting had not been on Bush's publicly released schedule when he arrived in Georgia, US, for the annual gathering of leading industrialised nations plus Russia.
White House aides hope that the United States will have secured passage of a new UN Security Council resolution laying out the way forward in Iraq by the time Bush meets with the newly-appointed president.
Bush is using the Group of Eight to push his Broader Middle East and North Africa Initiative, a plan to spread US-style democratic and free market policies throughout the region.
However, the Iraqi interim government may already be facing a major challenge.
In a letter addressed to Bush on Monday, Kurdish leaders Mustafa Barazani and Jalal Talabani demanded the new UN resolution on Iraq mention Kurdish autonomy.
According to Voice of America News, the two Kurdish leaders threatened to withdraw from the new interim government if their concerns were not addressed.