If you get error Could not yet establish the connection to the remote proxy while trying to start a session, it could be due to your NX server 3.5.0 being behind a firewall or the host where NX server is running preventing connections to ports other than TCP/22.
 
If this is the case, or if you prefer to encrypt the X traffic, you have to ensure  that the encryption of all traffic is enabled in the Advanced tab of NX client GUI.

Authentication and session negotiation is always achieved through a SSH connection. Starting from version 3.0.0,  also the NX proxy system by default uses an encrypted connection to the NX server to communicate X and other protocol data.