U.N. members agreed Friday night on a two-year budget that seriously restricts spending and applies pressure for management reform — a top priority for the United States and the European Union.

The General Assembly's budget committee was expected to approve the $3.8 billion plan, which includes a spending cap next year of $950 million.

U.S. Ambassador John Bolton called the approval a victory for the United States. Britain's U.N. Ambassador Emyr Jones Parry, whose country holds the EU presidency, said he wouldn't claim victory for the 25-member bloc but for the United Nations.

The agreement was reached after weeks of intense negotiations and a final round of meetings in the private office of General Assembly President Jan Eliasson. Ambassadors from wealthy and developing nations who had been at odds over the budget emerged together and announced that a deal had been reached.

The United States, Japan, Europe and other wealthy nations who pay about 85 percent of the U.N.'s budget joined forces to back a $950 million spending cap next year — which means the United Nations will likely run out of money in six months.

Their aim is to put pressure on all U.N. members to agree on management reforms by June, so that when the General Assembly is asked to approve another $950 million to cover U.N. operations for the rest of 2006 there will be sufficient progress for a "yes" vote.

The powerful Group of 77, which represents 132 mainly developing countries and China, had said it would only agree to a $1.35 billion cap on U.N. spending. Several key members including Egypt and India objected to any link between the new budget and management reform.

But Bolton said the link is implicit in the way the cap will operate.

"This evening the United States obtained something it had been striving for the last three months, which is a clear linkage between management reform and the budget process of the United Nations," he said.

Neil said the Group of 77 achieved some positive results. It wanted a two-year budget and got it: the 2006-2007 budget will total $3.8 billion.

Developing countries opposed the six-month spending cap, but he said the United States and Japan — the two major contributors — refused to budge. The Group of 77 then insisted that the spending cap would be "an exceptional measure, not to be repeated or used for the future," he said.

"We find unpalatable the fact that there is this ax hanging over our heads in terms of the spending limitation, but we will still go forward," Neil said.

Egypt's U.N. Ambassador Maged Abdelaziz said developing nations "are doing our best on the reform process ... but at the same time we don't want to be pressured by the budget."

Neil said the Group of 77 and China "are supportive of management reform" and want an efficient U.N. Secretariat — but won't necessarily agree with all reform proposals.

The fight over the U.N. budget became entwined with the battle over implementing the broad reforms that world leaders agreed to at a U.N. summit in September.

Earlier this month, Bolton called for an interim U.N. budget of three or four months rather than the usual two-year budget so that member states would have time to approve and fund management reforms expected early in the year.

Several key figures in the U.S. Congress have threatened to withhold U.S. dues to the United Nations if reforms are not enacted, which would deal a crippling blow to the world body.

Bolton's interim budget got no support but Japan, Canada, Australia and New Zealand came up with the idea of a cap which the United States quickly backed.

Some U.N. reforms have been approved.

On Tuesday, a new U.N. Peacebuilding Commission was established to help countries emerging from conflict manage the difficult transition to stability and development. Annan also signed a directive to protect whistleblowers.