A points victory for Blair, but his authority has been undermined

So who won the trial of strength between the Prime Minister and his Chancellor over last night's Cabinet reshuffle? On the face of it, Mr Blair has won on points. He has reinforced the ranks of the Blairite big guns at the heart of his machine after they were depleted by the departures of Alastair Campbell and Peter Mandelson.

So who won the trial of strength between the Prime Minister and his Chancellor over last night's Cabinet reshuffle? On the face of it, Mr Blair has won on points. He has reinforced the ranks of the Blairite big guns at the heart of his machine after they were depleted by the departures of Alastair Campbell and Peter Mandelson.

He has also seen off what appeared to be a concerted attempt by the Brownites to scupper his plan to bring back Mr Milburn, a long-standing foe of the Chancellor and - now that he is back in the Cabinet - his most serious rival in the future Labour leadership stakes. If Mr Milburn had rejected Mr Blair's overtures, it would have been a humiliating setback for the Prime Minister, a sign that Mr Brown was calling the shots.

Mr Milburn will not be in charge of Labour's election manifesto. That will be a matter for Mr Blair and the party, Labour sources said last night. But his list of responsibilities will be seen as an invasion of territory held by the Brown camp. He will take over as general election co-ordinator from Douglas Alexander, a Brown protégé and Cabinet Office minister. He will chairman Labour's general election planning group and be a member of the election strategy group chaired by Mr Blair. For good measure, Mr Milburn will have a government role, supervising the work of the Number 10 policy directorate and the Prime Minister's Strategy Unit and co-ordinating "the development of policy across government". That could certainly challenge Mr Brown's unofficial role as domestic policy overlord.

Although Mr Brown will not have a formal election title, Labour sources said that Mr Milburn would work closely with the "triumvirate" who would run the election effort - Mr Blair, John Prescott and Mr Brown. And yet it would be foolish to see last night's appointment of Mr Milburn as the Government's "policy supremo" as game, set and match to the Prime Minister.

Mr Blair certainly considered making Mr Milburn Labour chairman but was thwarted by an alliance between Mr Brown and John Prescott, the Deputy Prime Minister, who rallied behind Ian McCartney.

The protracted wrangle between Mr Blair and Mr Milburn last night over Mr Milburn's precise remit suggests there may still be key issues to be resolved. Mr Milburn was determined to win what allies called "a proper job, not a paper job." Mr Brown is not about to withdraw from the battle lying ahead over the prospectus Labour will offer the country.

As the most powerful Chancellor in modern times, Mr Brown will demand a big say in the manifesto. Allies say Mr Brown is right to be worked up: he may well take over as Prime Minister during a third term and does not want to be saddled with what his supporters regard as ill-thought out policies such as foundation hospitals and university tuition fees.

Equally, the drafting of Mr Milburn shows that Mr Blair wants a radical programme and not what the Blairites call the "safety first" approach of the Brownites. There will be many battles ahead.

Mr Blair will be anxious to ensure that Mr Milburn and Mr Brown find a modus operandi. But the dramatic events of the past few days may have left a nasty taste. As ministers and Labour MPs prepared to return to Westminster after their summer break last weekend, they were in good heart, apparently with good reason. Before Parliament's summer recess, Mr Blair was on an unexpected high, having dispelled the doubts that he might stand down before the general election. The Tories were in the doldrums. A third Labour election victory looked a safe bet.

Now Labour politicians are asking how such a strong platform turned to dust in a few messy days dominated by damaging speculation about the Cabinet reshuffle Mr Blair carried out. To make matters worse, the power struggle between Mr Blair and Mr Brown has erupted again in public.

One senior minister said yesterday: "It's a shambles. Everything was going well. Now we have managed to shoot ourselves in the foot. I thought things between Tony and Gordon had calmed down. Now we know it hadn't gone away, and it's war again."

The Brownites were accused of exploiting the resignation on Monday of Andrew Smith, the Work and Pensions Secretary, by blaming his departure on anonymous briefings against him by Downing Street.

Whatever the history books eventually say about Mr Blair's strengths, it is a fair bet that managing his ministerial team will not be one of them. Reshuffles are seen as a way for a Prime Minister to remind everyone who is the boss and last weekend Blairites said Mr Blair would use last night's shake-up to "reassert his authority" over his Cabinet and party.

Moreover, his personnel management in his second term has gone badly off the rails. After the 2001 general election, Mr Blair told four key "delivery" ministers - Mr Milburn (health), Estelle Morris (education), Stephen Byers (transport) and David Blunkett (Home Office) - that he wanted them to stay in post until the next election in the hope that the nettle of public service reform could finally be grasped. But two years later, Mr Blunkett was the only one left.