The U.N. should suspend sanctions against Iraq, France proposed Tuesday in an important step toward the United States' goal of ending trade embargoes on the newly liberated country.

U.S. Ambassador John Negroponte stuck by President Bush's demand that because of "the dramatically changed circumstances within Iraq," sanctions should be lifted entirely -- not just suspended.

"We now need to work with France and other countries to see how best that can be achieved and how quickly."

Still, the first Security Council meeting on the future of post-Saddam Iraq indicated that deep divisions remain over who should disarm the country and how sanctions should be lifted.

The French proposal appeared to take the Russians and Germans, their closest allies in opposing the war, off guard. Neither embraced it, and both strongly supported the return of U.N. weapons inspectors to verify Iraq's disarmament before sanctions are lifted -- which the United States opposes.

Because finding and destroying weapons could take months, the Security Council would be "holding Iraq's economy hostage" if it delays in lifting sanctions until their destruction is verified, a diplomatic source told Fox News.

"We should really deal with the situation in Iraq thinking always about the situation of Iraqi people," French Foreign Minister Dominique de Villepin said Tuesday in the Turkish capital Ankara.

France's U.N. ambassador, Jean-Marc de La Sabliere, also said it was time for the Security Council "to take into account the new realities on the ground" and adopt "a very pragmatic approach" to dealing with Iraq.

"I have proposed that the decision should be taken to immediately suspend the civilian sanctions," he told reporters.

The proposal would suspend the U.N. ban on trade and investment in Iraq along with a flight ban while leaving a 12-year-old arms embargo in place. But it wasn't clear how a suspension could be implemented without an Iraqi government in place.

The Security Council imposed sanctions after Iraq's 1990 invasion of Kuwait, and modified them in 1996 with an oil-for-food program that allowed Iraq to sell unlimited quantities of oil to pay for humanitarian goods and reparations for the first Gulf War.

The program had been feeding 60 percent of Iraq's 24 million people.

Under council resolutions, sanctions cannot be lifted until U.N. inspectors certify that Iraq's nuclear, chemical and biological weapons have been destroyed along with the long-range missiles to deliver them.

But the United States has deployed its own inspectors to search for weapons of mass destruction -- and Negroponte made clear Tuesday that the Bush administration doesn't want U.N. inspectors to return any time soon.

Chief U.N. weapons inspector Hans Blix said he didn't see "any adversarial arrangement" between his inspectors and the U.S.-led coalition's teams. "We're all interested in finding the truth about the situation, whatever it is," he said.

"But at the same time I am also convinced that the world and the Security Council ... would like to have inspection and verification which bear the imprint of an independent institution."

Russian Ambassador Sergey Lavrov said his country supported lifting sanctions. But he said Russia wants U.N. inspectors -- the only ones in the world with "expertise" on nuclear, biological, chemical and missile issues -- to certify that Iraq has been disarmed, as required under U.N. resolutions.

Asked about the French proposal, he said: "We are ready to discuss it."

Germany's U.N. Ambassador Gunter Pleuger agreed, saying there should be coordination between the U.N. inspectors and U.S. teams.

De La Sabliere told The Associated Press he envisioned sanctions being suspended "for a couple of months," and possibly renewed. He also envisions U.S. and U.N. inspectors working together. "And then sanctions could be lifted when a legitimate Iraqi government is in place," he said.

In Washington, State Department spokesman Richard Boucher said the French proposal "may be a move ... in the right direction, some beginning of understanding that the situation is different.

"But the situation is so much different that there is no need for the sanctions any more, and we need all to look at how they can be lifted, and how the Iraqi people can go back to a normal relationship with the world," he said.

At another meeting, the council heard from Benon Sevan, head of the oil-for-food program, who called for an extension of U.N. Secretary-General Kofi Annan's authority over humanitarian contracts until June 3 to speed humanitarian relief to the Iraqi people.

His office announced earlier Tuesday that U.N. agencies have identified over $450 million in priority humanitarian contracts that can be transported to Iraq before the current May 12 deadline.

Mexico's U.N. Ambassador Adolfo Aguilar Zinser, the current council president, said he circulated a resolution to extend Annan's authority to June 3 -- the day the current six-month phase of the oil-for-food ends -- and expects the Security Council to adopt it this week.

De La Sabliere also proposed the council phase out the program, but ensure that the humanitarian needs of the Iraqi people are met. Sevan stressed that any phasing out must be done "step by step, because people have become so reliant on the supplies provided under the program."

U.N. inspectors, who went back to Iraq in November for the first time in four years, discovered no weapons of mass destruction during 3 months of searching. Secretary-General Kofi Annan ordered all U.N. international staff, including the inspectors, to leave Iraq just before the war began. He has said he expects them to return.

Fox News' Jim Angle and The Associated Press contributed to this report.