Kofi Annan has welcomed the decision by the United States to abandon efforts to stop its troops from being prosecuted by the International Criminal Court.
The prisoner abuse scandal undermined support for the US
The United Nations secretary general said the move would help to maintain unity in the security council at a difficult time.
US troops have had immunity from prosecution under a deal struck two years ago. It runs out on 30 June.
Washington withdrew a resolution to extend it after a lack of support.
"The United States has decided not to proceed further with consideration and action on the draft at this time in order to avoid a prolonged and divisive debate," said the US deputy ambassador to the UN James Cunningham.
The BBC's Susannah Price at the United Nations says the move is a major climb-down for the Americans, who rarely face such united opposition on the Council.
She says the prisoner abuse scandal in Iraq and opposition from Mr Annan, helped persuade the majority of council members not to back the proposal.
The UK was one of the few countries on the 15-member council that planned to back the resolution.
The US has previously threatened to veto UN peacekeeping operations if its demands for exemption from prosecution by the International Criminal Court (ICC) in The Hague were not met.
It has argued that the exemption is needed to protect troops against politically-motivated prosecutions.
Mr Cunningham did not repeat the warning, but said the US would in future "need to take into account the risk of ICC review when determining contributions to UN authorised or established operations".
The Bush administration is said to be indicating that it will protect its troops, serving in UN missions abroad, through bilateral agreements instead.
The US had offered a compromise to the security council on Tuesday, asking it to renew the existing immunity for just one more year.
But it was not enough to gain the necessary support of nine out of the 15 council members.
Earlier this month Mr Annan said if the exemption - which expires on 30 June - were extended, it would discredit the UN's claim to represent the rule of law.
"For the past two years, I have spoken quite strongly against the exemption and I think it would be unfortunate for one to press for such an exemption, given the prisoner abuse in Iraq," he said.
"Blanket exemption is wrong. It is of dubious judicial value and I don't think it should be encouraged by the council."
It is unlikely that American troops would end up at the ICC when the exemption runs out next week, our correspondent says.
Ninety-four countries, including Iraq, have not signed up so it would not apply to US troops on their territory.
Washington also has bilateral agreements with 89 others to protect US troops from prosecution.
Our correspondent says the countries signed up to the ICC point out that the court is only meant to be a measure of last resort, to be used if US courts failed to take action themselves.