The remarks, made at the start of a government meeting in Moscow and broadcast on national television, suggest an abrupt shift in the balance of power in the Kremlin as well as an attempt by Mr Yeltsin to distance himself from hawkish ministers he had supported but whose brutal incompetence has become a political liability.
Mr Yeltsin also took the offensive against his critics in parliament who on Wednesday voted no confidence in the government. He yesterday told the State Duma that it would "sign its own death warrant" if it did not change its mind, a warning that he would dissolve parliament rather than remove his cabinet.
The catalyst for the political turmoil is the hostage crisis in Budennovsk, where Interior Ministry troops tried to free some 1,500 captives by force before the Prime Minister, Viktor Chernomyrdin, secured their release through negotiation.
A deal that allowed the leader of the Chechen commandos, Shamil Basayev, to escape to Chechnya and which led topeace talks in the Chechen capital, Grozny, both humiliated and enraged Russia's military and security establishment.
In comments which, if acted on, could mark a turning point, Mr Yeltsin threw his weight behind the talks in Grozny, which on Wednesday produced a plan for the disarming and disengagement of Russian and Chechen forces.
"The process of a political settlement of the Chechen crisis has become too protracted. We lacked political will and flexibility," he said, "We have to admit that the people who conducted talks as representatives of the federal authorities counted more on the use of force for resolving the crisis."
This is a rebuff to Pavel Grachev, the Defence Minister, who ridiculed the idea of disengaging forces, and to Anatoly Kulikov, the Interior Ministry general in charge of Russian operations in Chechnya.
Mr Yeltsin savaged the agencies that have provided his only real base of support since he sent troops into Chechnya on 11 December, a decision that his former allies among Russian liberals and pushed his popularity ratings into single digits.
"Evidently it is necessary to take decisions on some leaders of ministries and agencies," he warned, saying the Defence Ministry, Interior Ministry, Federal Security Bureau, military intelligence and border guards had failed to protect the frontier with Chechnya and had been caught off guard by the Chechen raid on Budennovsk. He said that the hostage-takers had started shipping weapons into the town a month before the assault.
Sergei Medvedev, Mr Yeltsin's spokesman, said "appropriate decisions" would be taken at a meeting next Thursday of the Security Council, a secretive body that has directed the Chechnya war. Sergei Stepashin, head of the Federal Security Bureau, successor to the old KGB, looks especially vulnerable.
Mr Yeltsin's decision to throw down the gauntlet to the State Duma after its no-confidence vote on Wednesday is less risky.
Under the Russian constitution, the President can ignore the first such vote. Then, if parliament gives another thumbs-down within three months, he must change the government or call new elections.
Mr Yeltsin has gone for a second option, which allows the government to demand an immediate vote of confidence. Parliament now has only 10 days to vote again. New elections are already scheduled for December and legislators must now decide whether they dare risk an earlier poll.