Tony Blair has vowed not to retreat to a "political comfort zone" but hinted that he will make concessions to ensure Labour MPs approve his schools reforms.
At his final Downing Street press conference of the year, the Prime Minister admitted he was "battling on all fronts" on education, health, welfare and pensions. Urging Labour not to panic about the Tories' lead in the opinion polls, he said his party was still setting the political agenda.
His public determination to force through plans to hand individual schools more freedom masked what is likely to be a tactical retreat to head off a rebellion by Labour MPs over the Education Bill in February.
Ministers admit the Government will have to amend its plans on school admissions in order to avoid relying on Tory support to get the Bill passed, which could hasten Mr Blair's departure from Number 10.
The Prime Minister insisted his plans "specifically forbid a return to selection" by academic ability. He said a third of all schools - foundation and voluntary-aided ones - were already able, in effect, to act as their own admissions authorities. The Bill would extend that to other schools.
Mr Blair said: "We have got to find a way of making people understand it is no part of our desire to go back to selection. That is the very thing we have stood out against." He may give the admissions code statutory backing to reassure critics.
The Prime Minister rejected remarks by his deputy John Prescott that Labour was always at its best when fighting a class war. "I don't think anybody in the Labour Party is interested in doing that," he said. But he acknowledged that Mr Prescott, who criticised the schools proposals in a newspaper interview last weekend, had "articulated the concerns that many people have".
Mr Blair raised the prospect that Labour MPs might be allowed a free vote on whether to ban smoking in all pubs, rather than only those serving food. He said smoking was a unique issue.
He conceded that times were "tough" and that he was under attack from both the left and right. But he played down the threat from David Cameron, the new Tory leader. "What's the big idea coming from the Conservative Party? To try and become more like New Labour," he said.
Urging his party not to vacate the political centre ground, he said: "What's coming towards us is actually a very simple political challenge. Do you stick as New Labour or, at the very time when others are trying to become like us, do you vacate the ground and give it to somebody else?"
On the EU, Mr Blair denied the Treasury was "equivocating" over the deal on the budget agreed at last week's Brussels summit. He said the cuts in Britain's rebate on its EU contributions had been backloaded towards the end of the 2007-13 funding period to ease the burden in the early years, and that a one-off payment for new member states would cost Britain more.
Mr Blair ruled out an inquiry into allegations that the CIA has used British airports and airspace to transport prisoners to countries where they may be tortured. He said he had no evidence anything illegal had taken place and did not want to "add fuel" to stories about the practice known as "extraordinary rendition".