Fourteen countries on the 15-member council voted in favor of the U.S.-backed measure. Syria, the only Arab country currently holding a council seat, was absent from the meeting.
The move follows heated disagreement earlier this year among members of the world body over the war in Iraq. American and British leaders abandoned efforts to secure Security Council backing for the military action in March after encountering stiff resistance led by France, Russia and Germany.
"We disagreed about whether military action was appropriate," British Foreign Secretary Jack Straw told Reuters. "We now face the task of rebuilding Iraq, building it up to a state far better than what went before, under Saddam. And with a bit of luck, the international community can now move forward under the United Nations."
All three nations that led the antiwar campaign supported Thursday's resolution.
French Ambassador Jean-Marc de la Sabliere said the measure was "a credible framework in which the international community can lend support to the Iraqi people."
However, French Foreign Minister Dominique de Villepin said his country's support for the resolution did not mean it had changed its position against the U.S.-led invasion of Iraq.
Both the Russian and German U.N. ambassadors called the agreement a compromise.
"It does not fulfill every wish of all parties, but as compared to the initial draft of the co-sponsors, we have achieved substantial improvements," Gunter Pleuger, Germany's U.N. ambassador, said.
In the resolution, the Security Council lifted all trade and economic sanctions first imposed on Saddam Hussein's regime in 1990 following Iraq's invasion of Kuwait.
The United States and Britain now have U.N. approval to run Iraq, as well as to sell oil to fund the country's reconstruction, on an interim basis. The U.S.-led coalition plans to restart Iraq's oil exports soon, according to U.S. Ambassador to the U.N. John Negroponte.
"It is time for the Iraqi people to benefit from their natural resources," Negroponte said.
There are 8 million barrels of Iraqi oil ready for immediate export from the Turkish port of Ceyhan, according to the Associated Press.
The original resolution first introduced by the United States two weeks ago underwent more than 90 changes, according to the Associated Press. One of the more notable alterations gave the United Nations a larger role in establishing the new Iraqi government than initially expected.
Secretary-General Kofi Annan will appoint a U.N. special representative to Iraq who will work with the U.S.-led reconstruction team, referred to in the resolution as the "Authority." The U.N. High Commissioner for Human Rights, Sergio Vieira de Mello, is reportedly the top candidate for that position.
The resolution also provides for the U.N. to phase out the oil-for-food program over the next six months, transferring $1 billion to the Iraqi Development Fund. The U.S. and Britain will control the fund, using its money to rebuild Iraq's infrastructure. The U.N. and other international agencies will monitor and audit its use.
The measure contained a series of other provisions, including a prohibition on the trade of looted Iraqi antiquities and a return of missing Kuwaiti property.
The Security Council will review the resolution in 12 months, but the measure is expected to remain in effect "until an internationally recognized, representative government is established," which is expected to take years.
Thursday's resolution did not lift restrictions prohibiting Iraq from possessing and developing banned weapons and weapons systems. The resolution did allow for lifting the sanctions regime before U.N. weapons inspectors certified that the country no longer possesses banned weapons of mass destruction and weapons systems.
However, inspectors may return to Iraq in a limited role. The council will later decide on the specific roles of UNMOVIC, the United Nations Monitoring, Verification and Inspection Commission, and IAEA, the International Atomic Energy Agency.