The UN Security Council has rejected a Palestinian resolution calling for Israel to withdraw from Palestinian territories by late 2017.

Even if the draft had received the minimum nine votes in favour, it would have been defeated by Washington's vote against it.

The United States is one of the five veto-wielding permanent members. There were eight votes in support, two votes against and five abstentions.

Australia joined the US in voting against the measure.

US ambassador to the United Nations Samantha Power defended her opposition to the move in a speech to the 15-nation council.

"The United States every day searches for new ways to take constructive steps to support the parties in making progress toward achieving a negotiated settlement," she said.

"The Security Council resolution put before us today is not one of those constructive steps," she said, adding that it would undermine efforts to achieve a two-state solution.

"This text addresses the concerns of only one side."

Palestinians wanted negotiations based on pre-1967 borders

Jordanian ambassador Dina Kawar said he regretted that the resolution was rejected.

"We had hoped that the Security Council [would] adopt the draft Arab resolution because the council bears both the legal and moral responsibilities to resolve the Israeli-Palestinian conflict," she said.

The defeat of the resolution was not surprising.

Council diplomats said Washington had made clear it did not want such a resolution put to a vote before Israel's election in March.

They said the Palestinians insisted on putting the resolution to a vote despite it being clear that Washington would not let it pass.

The Palestinian resolution called for negotiations to be based on territorial lines that existed before Israel captured the West Bank, East Jerusalem and the Gaza Strip in the 1967 Middle East war.

It also called for a peace deal within 12 months and an end to Israeli occupation by the end of 2017.

An earlier Palestinian draft called for Jerusalem to be the shared capital of Israel and a Palestinian state.

The new draft reverted to a harder line, saying only that East Jerusalem would be Palestine's capital and calling for an end to Israeli settlement building.

The Israeli government said a Security Council vote, following the collapse in April of US-brokered talks on Palestinian statehood, would only deepen the conflict.

The Palestinians, frustrated by the lack of progress in peace talks, want to internationalise the issue by seeking UN membership and recognition of statehood through membership in international organisations.

Israel, which pulled troops and settlers out of the Gaza Strip in 2005, said its eastern border would be indefensible if it withdrew completely from the West Bank.

Their sudden announcement last weekend that they wanted a vote before the new year surprised Western delegations on the council.

In order to pass, a resolution needs nine votes in favour and no vetos from the council's five permanent members.

Reuters