By Louis Charbonneau

UNITED NATIONS (Reuters) - A U.N. attempt to work out a ban on nuclear weapons in the Middle East was in jeopardy after Egypt complained on Monday about the lack of progress and demanded the resignation of the Finnish coordinator of the initiative.

Western officials said Arab proposals drafted by Egypt for a major nuclear non-proliferation conference at United Nations headquarters in New York could torpedo the process and push Israel to walk away.

Israel neither confirms nor denies the widespread assumption that it controls the Middle East's only nuclear arsenal. Israel, which has never joined the 1970 nuclear Non-Proliferation Treaty (NPT), agreed to take part in NPT meetings Monday as an observer, ending a 20-year absence.

The head of Egypt's delegation, Assistant Foreign Minister Hashim Badr, rejected any suggestion that Cairo was a spoiler and insisted that he wanted to move the process forward, not kill it.

"Egypt has come to New York to secure a conference (on banning nuclear weapons in the Middle East), we want a conference," Badr said in an interview. "This is a key issue for Egypt for a long time, for decades, since 1974-75."

Failure to reach an agreement at the NPT conference could kill the Middle East nuclear ban initiative, diplomats said.

Egypt, in a proposal officially backed by all Arab countries and outlined in a "working paper" submitted by Arab delegations, called for Jaakko Laajava, the U.N. coordinator for organising the conference, to be dismissed. The 2010 NPT review meeting had called for a Middle East conference in 2012, but it never took place.

Egypt's proposal said U.N. Secretary-General Ban Ki-moon should convene a conference on a regional ban of weapons of mass destruction within 180 days after the NPT conference ends on May 22 and demanded that Israel immediately join the NPT as a non-nuclear arms state.

Despite the official backing of Arab delegations, several diplomats, including two Arabs, told Reuters that Saudi Arabia, Iraq and United Arab Emirates have reservations about Egypt's proposal. "Egypt wants to be in charge," a diplomat said.

Israel's delegation declined to comment on the proposal.

The Jewish state has said it would consider inspections and controls under the NPT only if was at peace with its Arab neighbours and Iran.

Washington and Israel say it is Iran's nuclear programme that threatens the region. Iran says its programme is peaceful. It is negotiating with world powers to curb it in exchange for the lifting of sanctions.

Finnish diplomat Laajava managed to get Israel, Arab states and Iran to attend a preparatory session in the Swiss city of Glion in October 2013. Western officials cite that as progress.

Washington has not given up hope. "We have seen significant progress in the regional consultations that have taken place," a U.S. official said.

Arab delegates said Israel was not serious about a conference on banning weapons of mass destruction. Israel has conditioned its participation on an agenda being agreed in advance and says it wants to discuss regional security, conventional weapons and the Middle East peace process.

(Reporting by Louis Charbonneau; Editing by Grant McCool and Ken Wills)