Warning that 1999 would be a critical "year of challenge" for his Government, he told the Labour conference in Blackpool there would be "no backing down" from his tough decisions on inflation, interest rates and public spending.
"Backbone not backdown is what Britain needs," he said.
The Prime Minister suggested that no section of society would be immune from his modernisation plan. He demanded greater efficiency from the education, health and police services, but also had a stark message for Britain's businessmen: "Be honest: your fundamental problem is not high interest rates or a high pound. It is too few first-class managers. Too little investment. Too little productivity."
Mr Blair's uncompromising 50-minute speech, which was enthusiastically received by the conference, was aimed at carrying his party with him as he pushes through reforms.
However, he made clear he would press ahead without his party's support if necessary. He said the Government must "listen to criticism but not be paralysed by it", and march towards its destination "through the thickets of disillusion, the ambush of oppositionalists for whom all change is betrayal and who long for our failure".
Labour would be attacked from both the left and right, but must `"hold firm". He said: "Of course we'd rather be popular than unpopular. But better to be unpopular than wrong."
He assured his party the reforms would be true to Labour's traditional values, saying it had won the battle of ideas and the "crude individualism" of the Thatcher era had been replaced by "community" as the spirit of the times. "It's up to me" was being replaced by "it's up to us".
He dismissed as "nonsense" the idea that his administration was "just a more moderate or competent Tory government".
But Mr Blair left his audience in no doubt that some unpalatable medicine would have to be swallowed. He said reform was "the only salvation" for the welfare state, and signalled changes to pensions and disability benefits.
Mr Blair announced a tougher regime for new claimants, who will be called to interviews with a personal adviser "to talk about how they can become more independent".
Mr Blair said there was no reason why a headteacher who turned round a failing school should not earn pounds 60,000 or pounds 70,000 a year. But bad heads "shouldn't be running a school at all". Officials later revealed a new scheme under which "burnt out" heads would be transferred to a less demanding job, perhaps a part-time post, rather than be sacked.
Mr Blair announced that a Green Paper aimed at strengthening the family would be published next month. Amid ministerial fears that the crusade could be a repeat of John Major's disastrous "back to basics" campaign, he urged the media not to use the initiative "as an excuse to dredge through the private lives of every public figure".
He struck a sceptical note about the introduction of proportional representation for House of Commons elections and assured his party: "The Government will decide its response in the interests of the country, not in the interests of the Liberal Democrats."
His words suggested cabinet ministers would be subject to collective responsibility and would not be free to campaign for their own views on PR.
Denying Paddy Ashdown's charge that he was a "control freak", Mr Blair confirmed he would give up the Prime Minister's traditional right to appoint peers.
Mr Blair adopted a positive tone on Europe, after criticism from pro- Europeans that sceptics were winning the propaganda battle while the Government remained silent.Reuse content