It also calls for an opening of the Gaza crossings but does not offer a time frame for a withdrawal, our correspondent said.
It also condemns all violence directed against civilians and all acts of "terrorism", but there is no condemnation of Israel's offensive and no mention of Hamas rocket fire.
And even if the legally binding resolution were passed, it would have no enforcement mechanism and Israel has ignored dozens of UN resolutions over the years, our correspondent added.
It was also unclear whether Hamas would accept a text which does not mention the lifting of Israel's blockade on Gaza.
Al Jazeera understands that the French delegation had asked for another 24 hours to work out the draft resolution, drawing a furious response from the Saudi delegation, who said that they would not wait any longer as civilians were dying by the minute.
An agreement was finally reached after Arab foreign ministers made some amendments to the draft sponsored by the US, UK and France, allowing them to get on board with the draft and drop their bid to support another draft resolution sponsored by Libya.
Libya, currently the only Arab nation serving as a non-permanent member of the security council, had been urging council members to back its own version of a resolution, although the US had blocked an earlier Libyan draft that Washington and its allies saw as being anti-Israeli.
An emergency session of the General Assembly set to be held later on Thursday to discuss the Gaza crisis was later cancelled.
More than 763 Palestinians have been killed, including more than 200 children, since the Israeli offensive began on December 27. More than 3,121 people have also been wounded.
Eight Israeli soldiers and three civilians have died in the same period.
Israel has opposed the idea of the UN Security Council taking any action on the Gaza crisis, whether through a resolution or a non-binding statement.