Israeli and Palestinian leaders agreed at the talks to work towards a peace deal by the end of 2008.
The US draft said the council "endorses the programme of action for negotiations and implementation of outstanding obligations ... agreed upon by the Israeli and Palestinian leadership at Annapolis, Maryland on November 27, 2007". Israeli unease
"It's not the proper venue," Daniel Carmon, Israel's deputy ambassador, said after Friday's council meeting.
"We feel that the appreciation of Annapolis has other means of being expressed than in a resolution."
Carmon said that the US had told Israel that the Palestinians also objected to the draft.
Another Israeli diplomat said his government considered the relaunch of the peace process to be solely a matter between Israel and the Palestinians.
Mahmoud Abbas, the Palestinian president, said on Friday that he did not know the details of the draft resolution but that he saw it as a sign of Wasington's seriousness.
"This means, if what we have learned is verified, that there are serious steps that speak to the existence of an American position supporting the negotiations," he said in Tunisia.
On Thursday, after the session at which the draft was submitted, Zalmay Khalilzad, US ambassador to the UN, said Security Council members intended to discuss the text with the parties involved.
His comments appeared to suggest that Israel and the Palestinians had not been consulted before the text was drafted.
After the draft resolution was withdrawn, Riyad Mansour, UN permanent representative for Palestine, said: "We were supportive of a reaction of the Security Council to support what came out from Annapolis in any form."
George Bush, US president, brought together Ehud Olmert, Israel's prime minister and Abbas at Annapolis on Tuesday in a bid to restart the Middle East peace process.