The AU's Peace and Security Commission discussed the proposal at its headquarters in the Ethiopian capital, Addis Ababa, on Friday.
However, the 15-member body appeared split over exactly when the force would be deployed.
Politicians argued for the troops to go before the end of the month but military experts recommending a later date, officials said.
The AU report came just hours before the president's compound in Mogadishu came under attack from unknown men.
Several mortars were fired at the area and then a brief gunfight erupted between the attackers and the president's guards as Ethiopian troops rushed to the scene in tanks and trucks.
It was no immediately clear if the president and prime minister had been in the 'Villa Somalia' compound at the time. There was no word on casualties.
The attack is the latest of several hit-and-run attacks carried out against the Somali government's forces and their Ethiopian allies in recent weeks.
Earlier in the day, the interim Somali government hailed the handover of heavy weaponry by warlords.
At least 70 armoured vehicles, around 120 mortars and a tank had been handed over during the first week of a disarmament agreement reached by the warlords and the government.
Abdirahman Dinari, a government spokesman said: "We have begun at a steady pace and people are pleased with the governement's work towards the disarmament."
"This is the first stage of disarmament and (other) clans are also ready to return all of theirs. We have received a lot of commitments from them that they will doing so."
Diplomats say international peacekeepers are the only way to stabilise Somalia following the departure of Ethiopian troops.
|The country has had no central government |
for over 15 years [Reuters]
Somalia's interim government defeated the Union of Islamic Courts - who had controlled much of the country - over the new year with aid of Ethiopian and US forces.
The Ethiopian prime minister, Meles Zenawi, told the BBC on Friday that his forces were to start leaving "in the next few days".
So far Uganda has been the only country to pledge troops publicly and many think it will be a long and difficult task to muster such a force.
Such a UN mission "will support the long term stabilisation and post-conflict reconstruction of Somalia", added the report.
A police training team, supported by maritime, coastal, air and civilian "components" should also be deployed with the initial AU force, it said.
Somalia has not had effective central government since 1991.