Plans for the industrialization of the Third World over the next two decades suffered a serious setback here this weekend, when a confrontation between the rich and poor nations ended in deadlock after three weeks of negotiations.

An Indian newspaper headline said: "Poor nations let down by the rich."

But for the Western delegates, important matters of principle were involved. In their view, the United Nations Industrial Development Organization was being turned into an anti-Western political forum and they were being asked to sign a lengthy denunciation of "Zionism, racism and imperialism," drafted in Havana.

Ambassador John McDonald, leader of the U.S. delegation, said the West was presented with proposals that he called "unreal."

The roots of the conflict lay in last December's "Havana Declaration," agreed to at a meeting of Third World countries, and presented here with only a few amendments for acceptance by the Western nations as well.

McDonald said: "The declaration attacked the West repeatedly, unfairly blaming us for all the evils of the world. It ignored the role of OPEC completely, and the East Europeans were ignored completely. We are the bad boys, and the group of 77 [underdeveloped countries] are the good guys, doing everything right. We just think this is the wrong way of having an international conference coming out with any agreement."

The centerpiece of the Third World's industrialization plan was to set up, by the year 2,000, a global fund of $300 billion, administered by UNIDO. However, its distribution and the uses to which it would be put would be decided by the Third World alone.

"So we put up the cash," McDonald said, "and they decide what to do with it. It as a bit unreal."