Mr Blair also appears to be losing the argument over the creation of a common European defence.
Yesterday's draft treaty calls for the gradual integration of the Western European Union, Europe's fledgling defence arm, into the European Union, an integrationist move which Mr Blair opposes.
Furthermore, the Government has failed to persuade its partners that flexible decision-making, by which some countries proceed at a faster pace than others, should only go ahead with the unanimous backing of all states.
The draft treaty text says flexibility can go ahead by qualified-majority vote, although other states have accepted that it should not apply to fields such as the single market or monetary union.
Despite widespread predictions that next week's Amsterdam summit would run smoothly for Britain's new government, there are clearly several areas where conflict is likely to arise. In addition to troublesome proposals in the draft treaty text, Britain is likely to come under pressure next week over the timing of its implementation of the Social Chapter regulations.
The Government won widespread goodwill by agreeing to accept the Social Chapter, but now appears to be stalling over translating the measures into law. Nevertheless, the clashes at Amsterdam will be less fractious than the head-on confrontations seen at previous summits when the Conservative government was in power.
Although it is now clear Mr Blair will not be able to secure a treaty shaped entirely to his liking, the room for compromise remains broad, and tough talking will almost certainly end in a deal.
In return for giving more ground on issues such as immigration and asylum, defence and voting rules, Mr Blair now looks likely to secure a deal on fish quota-hopping, which would curtail the ability of foreign vessels to fish the British quota.
The Prime Minister is expected to be able to claim that he has won the arguments over the shape of a new employment chapter in the Amsterdam Treaty, which he hopes will emphasise flexible job markets.
For Britain, the most emotive issue to be discussed at Amsterdam will be the right to maintain border controls. In many respects the draft treaty published yesterday goes a long way towards meeting British concerns, recognising Britain should not be forced to lift border checks because it is a special case as an island state.
Britain has not specifically demanded an "opt out", because it wants the right to "opt in" to areas of justice and immigration policy at will.
As a result, negotiators have become enmeshed in a legal nightmare. The problem for the government is that although the new text appears to make provision for Britain to pick and choose which regulations to adopt on border policies, there is no black-and-white legal guarantee it can keep borders.
The danger, say government officials, is that Britain could in future be ordered to lift its border checks by the European Court.
Other member states are impatient with Britain's stance, which is holding up a deal on what they view as the core of the new treaty. These states have long hoped to finally put in place a "border free" Europe, combined with agreed policies on external frontier controls to create a ring fence around the Union.Reuse content