From the first moment, Tony Blair has played it perfectly, writes Paul Routledge
The last time I saw people power in action was in Manila in 1986. And an awesome sight it was, too. Ferdinand Marcos, the corrupt, ailing dictator of the Philippines was trying to steal the presidential election from the rightful winner, Corazon Aquino, an elfin figure of a woman pitted against the might of the military establishment. The people would have none of it. They took to the streets in their millions, in a show of popular indignation that swept their beloved Cory (it means "heart") into the presidential palace.

Something of the same kind happened last week. Not on the same scale, of course, but of a similar nature. The raw energy of public sentiment, which was channelled, rather than invented, by the tabloid press and adroitly manipulated by New Labour, brought about a fundamental shift in the Royal Family's way of doing things. Tony Blair tapped the populist feelings of affection and pride (and perhaps guilt also) about Diana, Princess of Wales, to compel a people's funeral for the People's Princess.

In doing so, he has ensured that relations between government and the monarchy, but particularly this Government and this Royal Family, cannot go back to where they were a week ago. Mr Blair has made it listen to the people. It will not easily be allowed to turn a deaf ear again. To that extent, Buckingham Palace is more of a prisoner of Downing Street than ever before. While it could not possibly have wished it to happen like this, the Prime Minister and his key advisers have shown that by reading the popular mood swiftly, and accurately, they can move mountains, constitutionally speaking.

Let us recap. A week ago this morning, a few short hours after the Princess of Wales's death had been confirmed, Mr Blair stood outside a church in his county Durham constituency and articulated the feelings of millions of people struck virtually dumb by the incomprehensible tragedy in a Paris underpass. He had already told his press secretary, Alastair Campbell, on being told the news in the early hours of the morning: "This is going to produce real grief on a scale that it is very hard to imagine." Then, he spoke for the nation. In particular, his invocation of the "the People's Princess" was a master-stroke. That was precisely what she was, but it took a politician of her own generation to understand and communicate that idea with conviction. His lip trembled, his voice broke with emotion. Quite apart from the prepared text of tribute and love, the body language was saying "it's okay to grieve in public: look at me". The people followed his example.

His performance contrasted sharply with the leaden-footed Conservative leader, William Hague, who evidently forgot his baseball-hat image and talked woodenly "on behalf of my constituents", as though he were lamenting the demise of one of his longer-serving backbenchers from the Shires. Mr Blair's public grief also pointed up the anguished official silence at Balmoral, where the Royal Family clearly felt unable to share in the unprecedented outpouring of feeling, releasing only an eight-word statement to express its deep shock and distress. Even that arch-cynic, Richard Littlejohn, columnist on the Daily Mail, thought the Prime Minister got it right.

From that point onwards, Mr Blair and his closest ministers and advisers were pretty much on top of the story. They ensured that the number of condolence books first doubled, and then increased ninefold. They responded to the public pressure to lengthen the route of yesterday's "unique" event. Politely, but firmly, they put the brutishly insensitive Scottish Football Association in its place, with the deferral of the international match against Belarus. Mr Blair then sprang to the aid of the Royal Family with a Downing Street appearance to defend the Queen from charges of showing insufficient public grief. Contact between No 10 and the Palace was continuous all week. Officials met every morning to take the temperature and discuss what further steps were necessary to meet the rising expectations of the public.

Friday's events were the culmination of social and political pressures that have probably marked a watershed in the role of the Royal Family, and how it relates to the citizenry. The Prince of Wales and the young princes, William and Harry made face-to-face contact with people who had come to lay flowers and personal messages. The Queen and Prince Philip, signalled a new readiness to "hear us when we cry to thee" in a walkabout outside Buckingham Palace.

There was a certain stiffness, artificiality almost, about both occasions, though that might only have been expected from those caught up so closely in the tragedy. It was not until the Queen's live, televised address to her subjects against the backdrop of teeming crowds in the Mall, that the real hint of what may now follow emerged. "I, for one, believe that there are lessons to be drawn from her life and from the extraordinary and moving reaction to her death," she said. "I share in your determination to cherish her memory."

The royal acceptance that "there are lessons to be learned" from the events of the past seven days was the clearest indicator yet that the Palace could consent to change. Quite what form that change will take is not likely to emerge quickly. But Mr Blair's lunch with the Queen at Balmoral today, an annual prime ministerial date that this year takes on added meaning, is a starting point. For New Labour, the past week was a textbook example of how to handle an occasion of state involving today's generation. Except this one isn't in any of the text books. Mr Blair's insistence on a people's funeral simply tore up protocol dating back to the First World War, and started afresh from a perception of what the people would want.

Some have found this contrived: a populist occasion finessed by the spin doctors as if it were just another tabloid story. And the scenes at Westminster Abbey yesterday, of actors, pop stars, opera singers and dress designers - the beau monde of the gossip columns - rubbing shoulders with the Speaker, Betty Boothroyd and a clutch of former prime ministers, might be adduced as supporting evidence for this view. But it misses the point. That's what the people think Princess Diana would have wanted, so they want it too.

The Prime Minister's skilful exploitation of public feeling over the past week has had implications for the future, some of them quite ominous. Plainly, he intends to treat the nation as if it were the Labour party. He will go over the heads of the "activists", which, in this case, are the institutions or vested interests that prove inimical to change, to the broad mass of the people for their support. The taste of the masses can be fickle. In the remoter past, it has been deeply anti-royal. But the growl of workers' approval mixed with applause which I heard after the broadcast of the Queen's address among men employed on construction work at the Palace of Westminster, suggests that Mr Blair is pitching it perfectly.

And with the mob on his side, the opportunities are practically limitless. Calvin Coolidge once said that "the only difference between a mob and a trained army is organisation". New Labour has shown that it has the organisational skills. Already, on the Mall last week, the out-of-towners clutching their flowers in the condolence queue were calling themselves "Diana's Army". Pamela Methley, aged 65, of Ilford, Essex, told the Times: "Diana's Army has forced the Royal Family to retreat". For Diana, you could equally read Mr Blair.

The first big test of New Labour's surge of support will come this week and next, in the referendums on devolution in Scotland and Wales. Ministers, champing at the bit to get back on the campaign trail today, find it difficult to work out how the Diana week will play on the doorstep. "We haven't a clue," confesses one middle-ranking minister. Privately, they hope that the image of Mr Blair and his Government, as the good guys who did what Princess Diana would have wished, will bolster the faltering "yes" vote north of the border on the second question in the referendum about tax-raising powers for a Scottish parliament. The devolution strategists still believe that they will get a double "yes" in Scotland, creating a bandwagon effect in Wales a week later.

Beyond that, what endless vistas stretch out for the People's Party, who brought you the People's Budget, and now the People's Funeral! The People's House of Lords is promised already, with abolition of voting rights for hereditary peers. What would go better with that than a People's Monarchy, attuned to New Labour's vision of the 21st century? The only problem is that all this has happened so quickly and so unexpectedly that nobody knows quite what it would look like.