By Patrick Worsnip

UNITED NATIONS, June 23 (Reuters) - The U.N. Security Council considered on Monday a plan to disband its peacekeeping mission to the volatile border between Eritrea and Ethiopia after Eritrea forced most of its troops to go home.

The 1,700-strong force could be replaced by a small military observer mission on the Ethiopian side of the border, under one proposal before the council in a draft resolution submitted by Belgium.

The council took no immediate decision and instructed experts to assess the options, diplomats said.

The United Nations withdrew its peacekeeping force, known as UNMEE, from the border in February after Eritrea cut off fuel supplies. The force had been in place since 2000 after a two-year war between the Horn of Africa neighbors that killed some 70,000 people.

Asmara is angry that the United Nations has been unable to enforce a ruling by an independent boundary commission awarding the bulk of disputed border territory to Eritrea.

U.N. Secretary-General Ban Ki-moon warned in April that the withdrawal of UNMEE could spark renewed conflict on the 1,000-km (620-mile) frontier.

Brussels-based think-tank International Crisis Group said last week the armies of the feuding neighbors were "less than a football pitch" apart, risking a catastrophic new war.

The Belgian draft would end UNMEE's mandate, which comes up for a regular renewal on July 31.

Variant proposals would then either set up a mission "to observe and report developments in the border area which could undermine the peace process" or leave it to Ban to come up with ideas for a follow-on to UNMEE.

In a letter to the Security Council, Ethiopian Prime Minister Meles Zenawi said Addis Ababa was open to a U.N. presence on its territory provided it did not mean continuation of UNMEE "under a new arrangement."

But Eritrean President Isaias Afwerki said the only answer was for Ethiopia to withdraw from "sovereign Eritrean territory" and that the United Nations could not legitimize Ethiopian "occupation" by its presence.

Copies of both letters were obtained by Reuters.

Asmara says a November 2007 "virtual demarcation" of the border by the now-defunct boundary commission ended the issue. Ethiopia says Eritrea is illegally massing troops on the border in a supposedly demilitarized zone and it wants to discuss the border demarcation further.

The Eritrea-Ethiopia dispute is part of a set of regional tensions that extends into Somalia, where Ethiopian troops are supporting an interim government, and into Djibouti, whose forces clashed with Eritrean troops earlier this month. (Editing by John O'Callaghan)

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