Tony Blair told MPs during Prime Minister's Question Time that sending in ground troops against an "undegraded" Serbian military machine remained "formidable".
But he added: "Milosevic does not have a veto on Nato action. All options are always kept under review - that is sensible for us to do."
Mr Blair said the alliance was determined to succeed, adding: "It is only through Nato action that we shall defeat the policy of ethnic cleansing."
He also refused to condemn his own backbencher, Alice Mahon, who was the first British MP to visit Belgrade since the Nato bombing began on a trip partly paid for by The Mirror. The MP for Halifax was among 11 Labour rebels who, earlier this week, voted against the military action after a debate on Kosovo.
But Mr Blair stressed: "People have different views on this conflict and one of the things we are fighting for is the right for people to have different views, whether it is in Serbia or here.
"Obviously I don't agree with what Mrs Mahon has said or done, but she has the right to do it and we should defend that right."
Mr Blair also defended Downing Street briefings that have claimed the coverage of the conflict by the BBC's world affairs editor, John Simpson, is pro-Serbia. He said: "My view of democracy is he is entirely able to present whatever reports he likes and we are perfectly entitled to say that those reports are provided for under the instruction and guidance of the Serbian authorities."
William Hague, the Conservative Party leader, asked the Prime Minister about plans to deal with the Kosovo Albanian refugees, some of whom arrive tomorrow "for many months".
"That means proper provision of health care, proper sanitation, education for some of the children. Will you be discussing that in your talks in the US over the next few days?"
Replying, Mr Blair paid public tribute to the British troops for the "extraordinary" humanitarian work they had done.
"To be able to cater for some 600,000 refugees in these past few days is nothing short of a miracle. We continue with the action we have set out for the reasons stated.
"I think everybody knows now that the action Nato has taken is the only chance these people are ever going to have of returning to their homes."
The Prime Minister went on to stress the "very considerable significant part" Russia had to play in ending the conflict.
"I think it is important that we carry on giving a message to Russia that this is nothing to do with Nato wishing to extend its sphere of influence.
"On the contrary, it is to do with pursuing the type of campaign against ethnic cleansing and racial genocide that Russian people stood up and fought so bravely for in the Second World War."
The Liberal Democrat deputy leader, Alan Beith, said the likelihood of a worthwhile agreement being reached with President Slobodan Milosevic was "almost zero".
The Tory former armed forces minister Nicholas Soames (Mid Sussex) asked Mr Blair to consult Britain's allies during the Nato summit he is due to attend in Washington this weekend about the need to provide rapid reaction forces on Navy carriers in the Adriatic.
He said this would ensure that Mr Milosevic was "in no doubt that Nato is absolutely, irrevocably determined to see this through".
Mr Blair said the Government was determined to see the conflict through, but stressed that he did not want to say any more about the introduction of ground forces.
Labour's Harry Barnes (Derbyshire NE) said he supported the attacks on military installations within Yugoslavia and accepted that there would be collateral damage.
"Don't we often get things the wrong way around - seeming to be attacking civilian targets which are leading only to collateral damage as far as the military is concerned? Will action be taken to ensure that that form of activity does not take place in the future?"
Mr Blair replied: "The allied effort really makes every possible attempt to avoid any civilian damage."Reuse content