The resolution would ban "all flights" in Libyan airspace and allow "all necessary measures to enforce compliance," said diplomats quoting from the draft.
New talks on the two-part draft resolution are to be held on Wednesday, but French ambassador Gerard Araud said he did not expect a vote before Thursday.
Lebanon, acting for the Arab League, proposed half of the resolution which calls for a no-fly zone to protect civilians. The second, drawn up by Britain and France, calls for toughened sanctions against the Kadhafi regime.
China and Russia are leading opposition to the no-fly zone. Germany and the United States have strong doubts and favor putting new bite into the arms embargo, travel ban and assets freeze passed by the council on February 26.
The proposed resolution would add new names of individuals subject to the asset freeze and travel ban, diplomats said. It would also halt commercial flights suspected of bringing mercenaries or arms into the country.
"We are working for a no-fly zone, our goal is to get a no-fly zone," Araud told reporters. "The goal is first to prevent Kadhafi from bombing his own people."
"We are talking in terms of hours, and in terms of hours we do think that a no-fly zone is the least thing that we can do here," he added.
"We are deeply distressed by the fact that the things are worsening on the ground, that the Kadhafi forces are moving forward extremely quickly and that this council has not yet reacted," the envoy said.
Araud acknowledged though that the opposition "means that we can't do everything that we would want to do. So we are trying, France and the UK, especially, we are trying our utmost to move the council towards responding to the Arab League."
Opponents want to know who will take part in the no-fly zone, how it will be patrolled, and whether it should apply to all flights or just military flights.
"Some members have questions and they need clarifications before a decision is made," China's ambassador Li Baodong told reporters.
Arab involvement in the zone is a central part of talks. The Arab League called for a no-fly zone at a meeting last Saturday. But no country has yet volunteered to take part and the Arab nations also said there should be no foreign military intervention in Libya.
"We raised questions we felt are still not fully answered, as to the Arab participation in such a measure, as to whether the implementation of such a zone would run counter to the intention of the Arab League itself," said Germany's ambassador Peter Wittig.
The no-fly zone appeared to have been dropped when it failed to get support from a meeting of Group of Eight foreign ministers in Paris.
French Foreign Minister Alain Juppe said China was blocking UN action on Libya.
"If today we are stuck, it's not only because Europe is impotent, it's because at the Security Council, for now, China doesn't want any mention of a resolution leading to the international community's interference in a country's affairs," he said.
Earlier, Juppe told French lawmakers that with Kadhafi forces making new gains against opposition rebels the no-fly zone plan may have been overtaken by events.
Libya's UN mission, which has turned against the Kadhafi regime, has been asked to suggest areas that could later become a designated safe zone, Lebanon's ambassador Nawaf Salam said.
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