The Tory leader acknowledged the party had had a tough year and was still failing to generate much enthusiasm among voters but stressed that the time had come for the party to "take off its gloves and punch its weight".
In his keynote conference address, Mr Hague said the party must now get on with communicating British values of "smaller government and bigger citizens" to the people.
Amid the worsening of the economic situation, he called on the Government to take emergency action, including a moratorium on any measures likely to increase business costs.
He also pressed the Chancellor of the Exchequer, Gordon Brown, to make an emergency statement when MPs return to Westminster in two weeks and called for a Jobs Crisis Package to stem the series of factory closures. Urging activists to "take the battle out to the country", Mr Hague said there would be four steps to victory, "none of them easy, but all of them within our reach".
The party had already taken the first step, gaining seats in last May's local elections, he added. The second step was next May's local elections; the third step, elections to the new Scottish Parliament and Welsh Assembly; the fourth would be the European elections.
Mr Hague strongly defended the first-past-the-post voting system for Westminster elections, condemning the Jenkins Commission on electoral reform as "a rigged commission" which would produce a "rigged report".
"And when that report comes out, I expect every member of this party, every MP - and I mean every member - and every candidate in every election to fight it with all the energy and determination they can muster," he said.
Mr Hague went on to promise that the Tories would not stand "idly by" while Labour threatened so much that was important in Britain.
"We're going to fight for the British way. We're going to change our party. We are going to make sure that we are in touch with the basic instincts of the British people. We've made real, substantial progress this last year. But I have never once pretended to you that the road ahead for our party was anything but long and difficult," Mr Hague said.
There was a "golden thread" running through Tory party history, and the party needed to be clear why it was different from a Labour government that was using its language but reversing most of Tories' most successful policies.
Looking back at Tory achievements over the past 20 years, Mr Hague attacked Mr Blair, saying: "When I hear Tony Blair talk of these achievements I realise that he respects, that he fears them, that he would like to take credit for them - but that he doesn't understand them. Our way is not the first way or the second way or the Third Way. It is the only way for us. It is the British way."
In an appeal to his party to get in touch with the British people, he urged: "Unless we listen, we cannot hope to lead."
Mocking the Prime Minister's efforts to define a "Third Way", Mr Hague added: "For New Labour, the Third Way means having it every way.
The Tory leader accused the Government of breaking election pledges to cut waiting lists and introduce open government, opting instead to "treat Parliament and the public with arrogance, secrecy and contempt".
There had been a "major reversal" of the previous Tory Government's economic policy in the last 18 months, Mr Hague added. On welfare reform, he cited the sacking of the Social Security Secretary, Harriet Harman, and the resignation of her deputy, Frank Field, this summer as evidence of policy failures.
He vowed to fight Labour's "allies", the Liberal Democrats: "For too long our party has ignored the Liberals at a local level. We're not going to ignore them any more."
Setting out a Conservative approach, Mr Hague went on: "New Labour and the Liberals: the Third Way and the third rate. Our way is the British Way. The British Way is about smaller government and bigger citizens."
The British people "bridle against interference, bureaucracy and petty rules" and valued their personal freedom.
He said: "Since Labour took office, it is now possible to go into a restaurant and be told that the starter has been banned, the main course is under investigation and the cheese has been impounded by Department of Health officials. In this government we see all the instincts of the nanny state. Don't eat beef, don't drink, don't stay up late, don't drive and, if you do drive, don't park."
Labour's "nonsense" gave Tories a "great opportunity", the Tory leader said.
"We have always been seen as the party of economic liberty. In the face of this government's attitudes, we must make sure we are seen as the party of personal liberty too. For the British way is to keep government in its proper place - as the servant, not the master. It is to keep taxes as low as possible, keep regulation to a minimum, make sure government minds its own business so that people can get on with minding their own."
The British Way was about safeguarding the independent institutions which nurtured freedom and responsibility.
Tories drew on a long tradition of voluntary work and public service by British people. On the NHS, Mr Hague hailed the Tories' achievements of the last 50 years and urged a "mature debate" about its future where people at "the front line of health care" would have the freedom to make their own decisions.
Turning to education, he said all governments had interfered in education too much and the party must develop policies to "set all our teachers free", return power to parents and give all children good teaching. "Labour's going to be the party of political control. We're going to be the party of school freedom. Labour's going to fail on public services. They are going to let down the massive expectations they have aroused - and we are going to grasp the opportunity this gives us. We are going to be the true party of public services."
Mr Hague told the conference the British Way was not about uniformity, state monopoly and central control but "the creativity that comes from independence, the diversity that comes from freedom, the efficiency that comes from choice".
Mr Hague stressed the importance of "real welfare reform" which ended the culture of dependency, encouraged families to stay together, did not discriminate against marriage and helped people off benefit and into "real" jobs. "Strong and stable family life is the cornerstone of a healthy society," he said.
Businessmen looked to the Conservative Party to set them free to create wealth and jobs for our society, he added.
"These people who do the right thing rarely get the support they deserve from any government."
Freedom and democracy could only exist if they were protected by a constitution which upheld the rule of law, which held government accountable to the people and which maintained the integrity of the UK, Mr Hague said.
"Labour have undermined the stability of the United Kingdom. We have to restore its balance," he added. This might involve setting up an English parliament or reducing the voting rights of Scottish MPs at Westminster.
Mr Hague said he was "happy" to consider changes to the House of Lords. "But we're not going to go along with changes that would leave Parliament weaker, the government of the day more powerful, the House of Lords neutered and legislation rubber-stamped by Tony's cronies."
On Europe, the Tory leader said the party had "a great opportunity" following the ballot which showed 84 per cent support for his anti-Euro stance. "Our policy on the single currency is settled. Now that policy must become part of a positive and distinctively Conservative agenda for Europe, an agenda for a new generation."Reuse content