UNITED NATIONS, Aug 10 (Reuters) -Secretary-General Kofi Annan proposed on Thursday establishing a 4,200-strong U.N. peacekeeping force to monitor an accord halting a two-year border conflict between Ethiopia and Eritrea.

The Security Council on July 31 approved an advance party of up to 100 military observers, called the U.N. Mission in Ethiopia and Eritrea (UNMEE), to maintain liaison between the two sides and help prepare for a full-scale peacekeeping operation.

In a report issued on Thursday, Annan proposed turning this into a full-scale military force of up to 4,200 personnel, including 220 military observers, three infantry battalions and support units.

Ethiopia and Eritrea signed a ceasefire accord in Algiers on June 18, under the auspices of the Organisation of African Unity (OAU), to halt a conflict that has claimed tens of thousands of lives, uprooted more than a million people and at times involved World War One-type trench warfare.

Eritrea, an Italian colony until World War Two, was an Ethiopian province until 1993, when it became independent with Ethiopian support.

Fighting which first broke out along the 600-mile (1,000 km) border in 1998 flared up again in May this year, with each side accusing the other of seizing disputed territory.

The situation has been worsened by a severe drought in the region which the Ethiopian government estimates has left more than 10 million of its people in need of emergency food aid.

Under the agreement on the cessation of hostilities, UNMEE's main tasks would be:

- to monitor implementation of the accord;

- to confirm the redeployment of Ethiopian troops from positions they took after Feb. 6 1999 and that Ethiopia did not administer before May 6, 1998;

- to confirm that Eritrean troops remain 25 km (about 15.6 miles) - equivalent to artillery range - from the positions to which the Ethiopian troops will redeploy; and

- to supervise a temporary security zone to ensure there is no military presence from either side.

The U.N. mission would end after the disputed border has been delimited and demarcated.

Plans for expanding UNMEE were based on the results of a U.N. reconnaissance mission, headed by Major-General Timothy Ford of Australia, that visited the region in July.

Appealing to both sides to exercise restraint and cooperate with UNMEE, Annan said the people of Eritrea and Ethiopia "have suffered terrible losses during two long years of war."

"Their governments have now shown the commitment to create conditions for peace and prosperity," he said.

UNMEE and the United Nations would make every effort to assist them, he added. "However, in the end it is only the parties themselves who can bring lasting peace to their countries," he concluded.

If the Security Council endorses Annan's recommendations, it will mark another expansion of U.N. peacekeeping activities, which dropped from a high point of more than 78,000 troops, military observers and police in mid-1993 to fewer than 13,000 in mid-1999.

It is now approaching 40,000, with big new operations launched over the past year in Sierra Leone and East Timor.