The Council, backed by Mr Annan, issued an informal statement last night declaring that Baghdad's decision announced on Wednesday to suspend all future cooperation with the UN arms inspections was "totally unacceptable".
But views from several delegations, notably Russia, France and China, that further punishment of Iraq would be counterproductive appeared to have prevailed.
Down-playing the prospect of military action against Iraq, Mr Annan told reporters: "I don't think we'll need military forces."
It is a change in tone that appeared last night to have driven both the United States and Britain into a more lonely position on policy towards Iraq.
Mr Annan said his position had in part been spurred by a telephone conversation he held earlier yesterday with the Iraqi deputy prime minister, Tariq Aziz.
He said it was clear to him that Iraq felt that it was getting no recognition from the Security Council for the efforts it has made to answer the UN's remaining concerns about its ability to muster and produce weapons of mass destruction.
Characterising the tone of Mr Aziz in the conversation, Mr Annan said that the "frustration came through, if not desperation". He said he had told the Council that it was time "to stand back and make a comprehensive reassessment of where we are, where we are going and how we are going to get there".
Any change in course by the UN could lead to a diminished role for Richard Butler, the head of Unscom, the body in charge of disarming Iraq. It was a breakdown in talks between Mr Butler and Mr Aziz in Monday that was the catalyst to this latest impasse.
Sources said that several delegations in the Council questioned the role that had been played by Mr Butler. Hinting that Moscow would like to see the Australian diplomat sacked, the deputy Russian ambassador to the UN, Yuri Fedotov, told other delegates: "Sometimes when you are in a deadlock, you replace the negotiator.
Significantly, Mr Annan suggested that senior Iraqis be allowed to become much more involved in the UN weapons inspection programme and, if necessary, be invited to New York to speak directly to officials and possibly the Council itself.
Richard Butler, the US Ambassador, was notably more sharp in his criticism of Iraq as he emerged for yesterday's meeting.
"They are playing games and defying the international community and making sure that the sanctions remain in perpetuity.
"That will be the effect of their actions".
Iraq has meanwhile demanded that Unscom be uprooted from New York and established in Geneva where, it said, it would no longer be under the direct "criminal" influence of the United States.Reuse content