By Tamim Elyan

CAIRO (Reuters) - A proposal by ultraconservative Salafis to give Egypt's main Islamic institution the final say on whether the law of the land adheres to Islamic laws threatens to bring the already painfully slow process of drafting the new constitution to a grinding halt.

The proposal would give the revered Al-Azhar power similar to a supreme court by making it the arbiter of whether a law conforms with the principles of sharia, already cited in the constitution of ousted leader Hosni Mubarak as Egypt's "main source" of legislation.

Opponents say the move would only exacerbate Egypt's volatile politics and make it harder to heal social tensions in a country where one tenth of the population is Christian.

The argument is also diverting energy away from other essential points of law - the balance of power between president and parliament, the influence of the army, defense of personal freedoms and an independent judiciary.

"Lack of trust is so deep-seated now in Egypt," said Shadi Hamid, a political analyst at the Brookings Doha Center. "Anything in the constitution will be interpreted through this lens of mistrust."

A constitutional assembly of 100 thinkers, scholars, professionals and political and religious leaders dominated by Islamists is drawing up the constitution, without which the country cannot hold elections to replace a parliament that a court declared void in June.

Islamist President Mohamed Mursi holds lawmaking power for now, an awkward arrangement that erodes the credibility of his government, elected after Mubarak was overthrown last year.

Some liberals committed to a more secular state have already boycotted the assembly and are challenging it in court, saying Islamists have too much control and want to turn Egypt into an Iran-style theocracy.

"An assembly that doesn't reflect the intellectual diversity and a constitution in which core values aren't agreed on will lead to a deep social rift," Mohamed ElBaradei, former head of the U.N. nuclear watchdog, said on his Twitter account earlier this month. He has not responded to invitations to attend a hearing session at the assembly.

"BRING BACK SHARIA"

The assembly aims to complete a first draft of the constitution by late September, although a court has yet to rule on whether the assembly itself is legitimate.

The assembly is working by breaking the document apart: four committees are handling one section each. After they agree the articles in their sections they send drafts to the phrasing committee, which is where the Al-Azhar proposal now sits for debate - now delayed - over the exact wording.

Articles will then be approved by general consensus, or if that fails by more than two-thirds vote, and if that fails, then after more discussion, with at least 57 votes. The draft constitution must finally be approved by public referendum.

Analysts expect the new document to have a more Islamic flavor than its predecessor, including articles prohibiting criticism of God and establishing an institution to collect zakat, or charitable donations for the poor, while cancelling an article banning parties based on religion.

At the vanguard of this movement are the Salafis, who were kept out of politics under Mubarak but leaped onto the scene after his fall, taking second place in the country's first free and fair parliamentary vote in six decades.

Their slogan was to "bring back sharia" - laws derived from Islam's Holy Koran and the teachings of the Prophet Mohammad - in the belief it would solve Egypt's moral and social ills.

They say that since Article 2 of the old constitution already says "the principles of sharia" are the main foundation of legislation, they merely want to see this idea fully applied, if not by strengthening the role of Azhar, then by changing the wording to make it just "sharia" itself rather than its principles.

"Egypt is entering a new age that will witness a confirmation of the reference to sharia law in constitutions and a better application of it," said independent Salafi scholar Mohamed Youssry Ibrahim.

Some liberals accept the idea of giving laws a religious seal of approval but say Azhar's advice must not be binding.

The head of Azhar, founded over 1,000 years ago and widely respected among Sunni Muslims, is named by the president, but that arrangement is set to change. A new law will allow its leading Sheikh to be elected by a committee of 40 scholars proposed by the outgoing Sheikh and approved by the president, giving the prestigious institution more independence.

Given the composition of the assembly, and the public's general support for a more Islamic political leadership, the Salafis proposal would have a good chance of passing if put to a vote. But it could also spark a wholesale boycott that would delay - and maybe even scupper - the entire process.

"If there is no consensus, I think it will be difficult to have a draft constitution," said Waheed Abdel Maguid, a liberal member of the assembly and its spokesman.

BACK TO FRONT

Egypt's military leadership threw out the legal rule book when they removed Mubarak from power in February 2011 to end mass street protests and embarked on 18 months of rule by decree.

Mursi's election in June brought some clarity but the final extent of his powers still hangs on the deliberations of the constitutional assembly - an odd outcome caused by the back-to-front transition devised by the generals.

Judges are wading through a flurry of court cases and appeals challenging decrees from Mursi, the legality of the Brotherhood's political party and the move to void parliament.

Mursi's Muslim Brotherhood allies, whose party was the largest in the dissolved legislature, have avoided weighing into the dispute over Article 2 in an attempt to forge a consensus.

"We don't have a problem with it ... because Egyptians are religious by nature," said Hussein Ibrahim, former head of the Brotherhood parliamentary bloc and a member of the assembly.

Critics of the Salafis accuse them of trying to foist onto Azhar a role that contradicts a tenet of Sunni Islam - that no one holds a monopoly in interpreting the word of God.

Others say that making any Islamic body an arbiter of civil law ignores the rights of a Christian minority anxious at the growing assertiveness of Islamists in the nation of 83 million, the most populous in the Arab world.

"When you take away the monitoring ... from the constitutional court and give it to a religious entity, this is discrimination against Christians," said Hafez Abu Saeda, head of the Egyptian Organization for Human Rights.

Salafis in the constitutional assembly say they have watered down their original demands, which included an article that would have stated that "sovereignty is with God".

"We don't seek dramatic change," said Salafi ex-MP Younes Makhyoun. "We are a minority and nothing is passed except through consensus."

But he added: "After the revolution, Egyptians chose Islamists. Egyptians want Islam and the application of sharia. No one (opposes it) except TV personalities who have a loud voice and are trying to impose a different reality".

If and when the sharia debate is resolved, other vital details must be hammered out before the constitution can be put to a popular referendum, such as oversight of the army's budget and the power of competing institutions.

"How do you wield power? ... to what extent does it guarantee freedom of expression? These are issues that will really have an effect on people's lives," said analyst Hamid.

(Editing by Tom Pfeiffer and Sonya Hepinstall)