While the Tories seized gleefully on the seven-month old memorandum, with John Major declaring that Tony Blair's honeymoon was coming to an end, Mr Blair shrugged off the setback, declined to prolong it with a leak inquiry and won a standing ovation with an impassioned keynote speech to the Trades Union Congress in Brighton.
The Labour leader last night appeared to have gone a long way towards securing the backing of union leaders and damping down criticism of his leadership style after making a confident and eloquent plea for trust.
The memorandum - which calls for a "unitary command structure leading directly to the party leader" - threatened to revive accusations by Labour Party activists and some trade union leaders that too much power was being kept in the hands of the leadership.
But Mr Blair dismissed suggestions of a "hidden agenda" with a ringing defence of his modernisation of the party and a promise that "we have certainly got an agenda. And there is nothing secret about it. It is to win the next election".
After an initially muted reception, his speech won an enthusiastic reception when he departed from his text and came back fighting with an impromptu appeal which his aides said came "from the heart".
Pointing to the former Labour leader on the platform, he said: "Neil Kinnock brought this party back from the dead in 1983." John Smith had continued the process, and he was doing it now, he told the delegates.
"I do it because the society I want to create is not some fantasy or dream. It can be true, but it can only be true if we have the guts, the decency, the honesty to tell it to people how it really is, to not make promises we can't deliver," he said.
Amid behind-the-scenes charges and countercharges over the source of the leak, Mr Blair took the unusual step of letting it be known that he dismissed one of many suggestions circulating in Brighton - that it could have emanated from the office of Gordon Brown, the shadow Chancellor.
Although Labour sources were quick to point out that the document was drafted before the party ended its commitment to public ownership in April, Mr Major said in Birmingham that the row marked the end of the "honeymoon" period for Mr Blair's leadership.
The Prime Minister said: "I can't say I was very surprised to read it. We have been indicating that for some time. I think it is correct and most people in this country know that."
Michael Heseltine, the Deputy Prime Minister, said that the disclosures in the memorandum were firm proof that Labour lacked policies and ideas.
"It's a very interesting revelation of what the Conservatives have been saying, that the Labour Party have no policies and are increasingly frustrated and divided over what Tony Blair is trying to pull over the British people, which is a giant confidence trick," Mr Heseltine said.
However, George Brumwell, a leading left-winger and general secretary of construction union Ucatt, said Mr Blair's speech had healed the damage created by the leak.
Bill Morris, leader of the party's biggest affiliate, the Transport and General Workers' Union, said that the paper had been "around for some time" and characterised it as "the chattering classes at play".
Rodney Bickerstaffe, associate general secretary of Unison, said: "If the idea is that people will be excluded from making their contributions - that participation in the party in the role of government is going to be cut down to just a few people - I think everybody ought to be upset."
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