Tunisian girls check their computers in a Wi-Fi cafe on the Habib Bourguiba Avenue in Tunis. AFP/Fethi Belaid
The United States, Europe, Canada and other advocates of a hands-off approach to Internet regulation want to limit the new treaty's scope to telecom companies.
But Russia, China and many Arab states, which want greater governmental control, have been pushing to expand the treaty beyond traditional telecom operators.
Representatives from about 150 countries - members of the International Telecommunication Union (ITU) - have been negotiating for the past eight days in Dubai on the new treaty, which was last revised in 1988, before the advent of the World Wide Web.
The Russia-led proposal could have allowed countries to block some Internet locations and take control of the allocation of Internet addresses currently overseen by ICANN, a self-governing organization under contract to the U.S. Department of Commerce.
An ITU spokesman said this plan had now been scrapped.
"It looks like the Russians and Chinese overplayed their hand," said American cyber security expert Jim Lewis of the Centre for Strategic and International Studies.
U.S. ambassador Terry Kramer welcomed the decision to withdraw the Russia-led plan. But he also said: "These issues will continue to be on the table for discussion in other forms during the remainder of the conference."
China, Saudi Arabia, Algeria, Sudan and the United Arab Emirates had co-signed the aborted proposal. The UAE insisted the document had not been withdrawn.
"It may come down to the wire," said a Western delegate on condition of anonymity. "There are a lot of other (similar) proposals so I don't think this represents a substantial conclusion and could be just maneuvering."
The ITU usually takes decisions by consensus, but the intransigence of both sides means it could come to a vote in which the United States and its allies might be in the minority.
The United States' position is that the Internet has flourished with minimal state interference. It wants this to continue, arguing that many of the proposed treaty changes could allow governments to stifle free speech, reduce online anonymity and censor Internet content.
Russia and its allies have insisted they need new powers to fight cyber crime and protect networks.
Countries can opt out of parts of the revised treaty when it is finalized or even refuse to sign it
The talks are due to end on Friday.