Charles Kennedy, the Liberal Democrat leader, would reject any moves towards a "partnership government" before polling day, but he would join a Lib-Lab coalition afterwards, provided Mr Blair offered a referendum on reforming the voting system for the House of Commons.
Senior Labour and Liberal Democrat sources say a power-sharing government remains on the cards despite their embarrassment at the leaking of Paddy Ashdown's private diaries. The former Liberal Democrat leader suggested he and Mr Blair were close to forming a coalition in the autumn of 1997, five months after Labour's landslide election victory. Mr Ashdown wrote that Mr Blair told a private dinner there were "two easy people" he could sack from his Cabinet to make room for Alan Beith and Menzies Campbell.
Mr Ashdown was said to be "spitting blood" about the leak, which followed the theft of his diaries. He had not intended to make the coalition talks public until after the next election.
Downing Street tried to play down what it called the "jolly dinner" in October 1997. Mr Blair's spokesman disputed Mr Ashdown's version of events, saying there was "an element of wishful thinking in them".
Labour and Liberal Democrat MPs hostile to closer co-operation were furious. Gordon Prentice, Labour MP for Pendle, said there would have been a "nuclear reaction" among Labour MPs and party members if Mr Blair had proceeded with his coalition plan: "I cannot believe for the life of me that the Prime Minister could get away with dumping two Labour cabinet ministers and bringing in two Liberal Democrats."
Malcolm Bruce, chairman of the Liberal Democats' parliamentary party, said the dinner conversation was "regrettable". But he said there was never support, within Labour or the Liberal Democrats, for a coalition and it would have never "come to fruition".
Sources close to Mr Kennedy acknowledged that many Liberal Democrat MPs and party members would not support a coalition. He intends to go on the offensive against Labour in the run-up to the election, but will be ready to talk about a coalition if Mr Blair's massive 176 majority is reduced to around 50.
A clear sign of Mr Kennedy's long-term thinking came yesterday from Lord Newby, his chief of staff, who said the party's co-operation with Labour on a joint cabinet committee would continue despite Mr Ashdown's departure. " It is alive - and kicking," he said.
The Tories seized on what they called Mr Ashdown's "devastating revelations". In a letter to Mr Kennedy, Michael Ancram, the Tory chairman, accused the Liberal Democrats of "deceit" and "manifesto mis-selling". Mr Ancram said the disclosures "prove beyond doubt what we have been saying all along, that the Lib Dems are prepared to sell out the people who voted for them for a seat in a ministerial Mondeo".
Donald Macintyre, Review, page 3Reuse content