The report by the Middle East quartet -- the European Union, Russia, the United Nations and the United States -- calls on Israel to halt settlement expansion and the Palestinians to stop inciting violence.
Arab diplomats agreed during a recent meeting to try to block any move by the council to adopt a US-drafted statement backing the long-awaited report's recommendations, Riyad Mansour told reporters.
Egypt, which represents the Arab group on the council, was told "not to allow a statement to be adopted welcoming and endorsing the recommendations," Mansour said as the council met to discuss the report.
UN Secretary-General Ban Ki-moon urged the council to throw its weight behind the quartet's findings despite strong resistance from Israel and the Palestinians.
Israel has rejected the quartet's criticism of settlement construction while the Palestinians argue that the report failed to single out Israeli policies as the leading cause of the violence.
The report's findings and recommendations are supposed to serve as the basis for reviving the Israeli-Palestinian peace process that has been comatose since a US initiative collapsed in April 2014.
The Palestinian envoy suggested that recommendations concerning Israeli settlements were watered down in the final draft of the report by a "very powerful" member of the quartet, in a reference to the United States.
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Mansour said this was done to undermine a French initiative to hold an international peace conference later this year and to ensure that "the end result would be Israel is gaining and nothing will happen."
The Palestinians want the Security Council to "take note" of the report and welcome French and Egyptian initiatives to revive peace talks but it must not endorse it, said the envoy.
There has been growing alarm that ongoing violence and the construction of Jewish settlements on land earmarked to be part of a future Palestinian state are killing off prospects for a deal.
Israeli Ambassador Danny Danon stressed that direct negotiations were the only path to achieve peace.
"Plans for international initiative which seeks to impose a solution on the two sides send exactly the wrong message, said Danon.
"It tells the Palestinians they can achieve all the goals while continuing to encourage terror and refuse to even talk to Israel."
Mansour responded that the Palestinians have "moved from bad to worse" over years of bilateral negotiations, adding: "We are not going to do that again."
The French initiative would ensure that there is a collective approach to ending the Israeli-Palestinian conflict, said Mansour.