Howard gives the Tories back hope - and then quits for failing to win

"We've come back from the dead," said a former Tory minister yesterday. "But we're still just twitching." As the results began to sink in yesterday, Tory MPs were disappointed that they had failed to make the break-through that early gains had promised on election night.

Michael Howard did not spare himself, with a frank admission of failure, saying: "At the time of the next election in four or five years, I will by 67 or 68 and I believe that's simply too old to lead a party into government. So as I can't fight the next election as leader of our party I believe its better to stand aside sooner rather than later so the party can choose someone who can."

Mr Howard, who is credited with making the party electable again after replacing Iain Duncan Smith, added: "I have said many times since I became leader, during this election campaign, that accountability matters. I have said that if people don't deliver they go and for me delivering meant winning the election. I didn't do that. I didn't do that despite my best efforts. And I want to do now what is best for my party and above all for my country."

The Conservative MPs elected last night might make the Tory party at Westminster look younger and more appealing to women. Its new stars include Justine Greening who recaptured the Putney seat lost to Labour's Tony Colman by the former sports minister David Mellor in 1997.

But the Tories' problem, as Lord Heseltine warned yesterday, is that in the country, the Conservative Party is still dominated by the elderly and has failed to reach out to new, younger members.

On Thursday night, Mr Howard made voting Conservative respectable again for the first time since the sleaze scandals of the 1990s. But the Tories have yet to make the voters feel that Conservative policies are relevant to their daily lives.

The next Tory leader will have to rid the Conservatives of its reputation of being the "nasty party". The 2005 election campaign will have done nothing to dispel that image.

Mr Howard was advised by the political strategist Lynton Crosby, who was brought in from Australia to sharpen up the Tory attack. He focused on immigration in the early weeks of the campaign with posters and leaflets that made many middle-class voters feel uncomfortable.

Tory canvassers said playing the immigration card had proved effective in swinging white, Labour, working-class voters behind the Tories.

But even that failed to make the breakthrough. The Tories now have to find a way of achieving "cut through" to the Middle England voters they need to form the next government.

The youthful Tory education spokesman, Tim Collins, was the only high-profile casualty. Mr Collins, a former Tory strategist, in a rare criticism of his party, said the Tory campaign had been too negative. Calling for a change to more "sunny, optimistic Conservatism", he said: "I think we could have won more seats."

Stephen Dorrell, a Conservative "wet", said the Tories would have to supplant the Liberal Democrats in urban areas such as Cambridge, Birmingham, Manchester, and Bristol if they were to reclaim office. "These are the seats represented by Conservative MPs 10 years ago that we need to win back now, not from Labour but the Liberal Democrats, if we are to make the next government," he said.

Mr Dorrell, the former Tory health secretary, said: "We have to recognise that among the good news, the warning signals were there yesterday. The vote against the Government, the votes the Government lost, were not coming to us, they were going to the Liberal Democrats."

John Redwood, a right-wing former cabinet minister, agreed the Tories needed to win a further 120 seats to regain office. But he believes the Tories need to revert to Thatcherite principles of big tax cuts and lower public spending to regain their support, rather than aping the Liberal Democrats.

In a nutshell, that is the divide in the Tory party that has never been resolved and now needs urgent addressing regardless of who leads the party. Labour strategists see it as the "Clause 4" moment the Tories have never had, a reference to Tony Blair's ditching of Labour's traditional commitment to public ownership of utilities.

The Tory gains included Enfield Southgate, where the Schools minister Stephen Twigg unseated Michael Portillo in 1997.

The Liberal Democrat "decapitation" strategy, aimed at defeating shadow cabinet members, largely failed. The shadow Home Secretary David Davis, a leadership contender, increased his majority in Haltemprice and Howden. Theresa May also fought off the Liberal Democrats' challenge in Maidenhead.

The Tories had net gains of 33 seats last night, taking their total to 197 seats but that was 12 seats fewer than Labour under Michael Foot won in 1983. That had been Labour's worst result since the war.

Leadership contenders

David Davis

Mr Davis, 56, is regarded as the front-runner. A Tate and Lyle troubleshooter before winning his seat in 1987, he is seen as a law and order hardliner, but will reach out to the moderates over civil liberties. He is Eurosceptic, and a former Europe minister. Had a good campaign as shadow Home Secretary. A former SAS reservist, he takes no prisoners, which could be a problem if the party wants a softer image.

Alan Duncan

Mr Duncan, 48, the only openly gay front-bencher, is seeking to become the candidate to unite the centre-left to widen the Tory appeal.A moderniser prepared to take a stand against the traditional Tory position on Section 28. A former oil trader, he is a skilful debater with TV experience. He set out libertarian views on cutting the state in the 1995 book Saturn's Children which could appeal to the right.

Sir Malcolm Rifkind

Sir Malcom, 59, a brainy Scot who wears his gravitas lightly. Voted against the war and made a virtue of it. Foreign Secretary under John Major. Has the same age problem as Michael Howard but could continue Mr Howard's restoration of self-respect in the party. Knighted after 1997 defeat, he would go down well with the party in the country. A man of conviction and renowned for his sharp wit.

Liam Fox

A Thatcherite right-winger and former doctor, he was responsible for the policy offering NHS patients 50 per cent of the fees to go private. He will be going head-to-head with David Davis for the right-wing vote. Dr Fox, 44, is a slick debater, with an infectious laugh. He is socially conservative, including proposing the flogging of criminals, and a Eurosceptic. Friend of the pop star Natalie Imbruglia.

George Osborne

Heir to the Osborne and Little furnishing fortune, went to St Paul's School. Moderniser and uncomfortable with the hardline focus on immigration policy. Quick thinking, not posh, but seen as a bit green - he's 33 - who needs more experience. Bit like a young Blair - extremely personable and comes across as able to reach across party lines. A freethinker who would not be afraid to recraft policies.

David Cameron

Old Etonian, 38, likely to be annointed by Howard as his successor. Caring for his quadraplegic son, Ivan, shaped his policies on the need for special schools. Comes across as patrician, clever, and a thinker. Was put in charge of the manifesto instead of ''two brains'' Willetts. He is considered the Gordon Brown to Osborne's Blair. They are friends and may have to resolve their rivalry by a Granita-style deal.