"There is no reason to oppose it unless you are a perpetrator yourself," Ukraine Foreign Minister Pavlo Klimkin said.
Responding at the end, ambassador Vitaly Churkin said the meeting had been emotional and that the accusations levelled against Russia had been "insulting and not worthy of diplomats."
He questioned why Ukraine had allowed civilian airlines to fly over areas in which military activities were underway.
Australian Foreign Minister Julie Bishop tore into Russia saying "the anticipated excuses and obfuscation by the Russian Federation should be treated with the utmost disdain."
"The exercise of the veto today is an affront to the memory of the 298 victims of MH17 and their families and friends," she said.
The flight from Amsterdam to Kuala Lumpur was shot down near Donetsk in eastern Ukraine where Russian backed milita have been fighting Ukrainian forces.
Ukraine plus four countries which lost citizens in the shoot-down, Australia, Malaysia, the Netherlands, and Belgium drew up the resolution put to the council today.
Mr McCully chaired it because New Zealand is chairing the council this month and he had several meetings with the sponsors and Mr Churkin to see if the gap was bridgeable.
Soon after the airline was shot down, the Security Council unanimously passed a resolution (21/66)condemning the attack and calling on those responsible to be held to account.
Speaking in the council on behalf of New Zealand, Mr McCully said today's resolution sought a mechanism by which that accountability could be sought.
"The fact we have preserved the unanimity which characterized 21/66 is deeply, deeply disappointing.
"In failing to find a way forward, this council has let down the family and friends of those killed on flight MH17 and it has let itself down as well."
It as a "serious indictment" that the council, charged with international peace and security, could not agree on an accountability process when an airline was brought down.
"This does not appear to me to be a matter which could be seen in shades of grey. Either we follow a path of accountability or there is impunity and I very much regret that the latter is the result of the council vote today."
He said New Zealand particularly regretted the use of the veto, a power it had opposed since the UN was established in 1945.
"We as a council simply have to find better ways of working together."