The report by Kofi Annan, the UN secretary-general, on the confrontation made no reference to sanctions, a move mooted in a Security Council resolution in November, if the two countries did not scale down troop presence at the frontier by 24 December.
Referring to the UN Mission in Ethiopia and Eritrea the report said: "On 23 December, UNMEE confirmed that Ethiopia had completed the planned withdrawal of eight of its divisions from the forward positions. Most of the Ethiopian forces presently deployed in the border area appear to have a defensive posture."
However, Eritrea has not lifted its restrictions on UN peacekeepers, including a ban on helicopter patrols.
"The imposition of the restrictions on the freedom of movement of UNMEE personnel has continued," the report said.
The Security Council has also threatened sanctions if they were not lifted.
But the mission said there was no evidence of tanks, artillery or large-scale troop concentrations inside the buffer zone.
Eritrean troops were stationed at 15 to 17 locations inside the zone, with 80 to 150 soldiers at each position, it said.
Ethiopia disputes the decision
over a town awarded to Eritrea
Tension has risen in the Horn of Africa after Ethiopia failed to accept a legally binding ruling that awarded Eritrea a disputed town.
Eritrea is angry at the UN and the international community for not forcing Ethiopia to accept the decision, which both agreed to follow under a pact to end their 1998-2000 war which killed 70,000 people.
Diplomats say Eritrea's ban and later expulsion of UN personnel stems from frustration that the border has not yet been marked.
The UN Security Council is expected to discuss the situation on Monday.