Analysis: The Cold War is over, but the question being asked by some is who has won the peace?

The alliance seems doomed to take a diminished role as more and more nations attempt to join and Russia is given a special deal

The deal struck yesterday was, declared Jack Straw, nothing less than the "funeral of the Cold War", a "profound, historical change" and the moment that Russia came "out of the cold".

Nato reached an agreement in chilly Reykjavik to create a new, warm friendship with its old adversary that will change forever the West's primary security and defence organisation. Just one day after Washington and Moscow agreed to cut nuclear arsenals, Nato has agreed to give Russia a seat on a new body designed specially to accommodate it. This ground-breaking plan will be sealed at the end of the month at a summit in Rome hosted by the Italian Prime Minister, Silvio Berlusconi.

Signs of how much has changed already abound at Nato headquarters in Brussels. Among a cluster of newspaper cuttings stuck on an office wall is one with a picture of a smiling Lord Robertson of Port Ellen, the Nato secretary general, below a banner headline. Nothing surprising in that perhaps, except that the paper in question is Izvestia, once a centrepiece of the Soviet propaganda machine. The headline proclaims a new partnership with an organisation that the Moscow media once demonised. Few at Nato HQ dispute the Foreign Secretary's suggestion that the Cold War is well and truly over. But one or two staff are beginning to wonder who has won the peace.

Many now fear the new relationship with Russia could mean the end of Nato as a serious defence organisation and its transformation into a broader political and strategic alliance, an "OSCE [Organisation for Security and Co-operation in Europe] with weapons".

The deal follows a long game of diplomatic footsie between Washington and Moscow, with British help. There was already a channel of communication between Nato and Russia – the Permanent Joint Council – but it was seen on both sides as ineffectual and in 1999 the Russians stayed away in protest at the Kosovo campaign.

In the last year there was growing momentum from Moscow for another go. With its former satellites Estonia, Latvia and Lithuania bidding to join Nato this year, Russia's concerns about its strategic position became urgent. As one official put it, Nato is seen in Moscow as the "only organisation in the European arena which has the means to guarantee security".

For a nation trying to normalise its relations with Europe, winning some kind of arrangement with Nato became important. Talk of a formal application from Moscow to join was never realistic: candidate countries have to go through a rigorous application procedure before joining. Moscow would neither have passed nor have been willing to suffer the humiliation of taking the test.

Then, last autumn, Tony Blair floated the idea of a new structure to boost Russia's relations without giving it membership. The thinking fell on fertile soil: Russia had signed up to America's war against terrorism (it sees its conflict in Chechnya as an extension of the same battle) and was proving valuable to the US in Central Asia. What better reward could there be? The US has wavered over what it was willing to discuss with Russia, although the war against terrorism, nuclear proliferation, potential peacekeeping missions and civil emergency planning will now feature.

Russia was determined not to find itself presented at meetings with take-it-or-leave-it outcomes cooked up in advance by the 19. Nato was insistent that Russia should not be able to veto its independent action.

The compromise is to set up a new body, the Nato-Russia Council (NRC). Rather than there being a 19-plus-one formulation, the NRC will meet "at 20", a structure some Nato officials refer to by its Russian name: dvadtsatka. Initially, the diplomats will probably only discuss areas where they are likely to agree (although it is still unclear whether there will be the possibility to raise "any other business").

For Nato the dangers will come not from the new structure but from the context. With an already unwieldly membership of 19 states, the alliance is due to announce plans to enlarge again this year and seven nations – Slovenia, Slovakia, Bulgaria, Romania, Estonia, Latvia and Lithuania – are queuing up to join.

Nato has found it hard enough to reach consensus among 19, so the prospect of a 26-nation alliance endorsing controversial military operations remains very slim. The alliance is still licking its wounds after the Kosovo bombing campaign; though ultimately successful, it revealed the strains within Nato and underlined the gulf in capabilities between Europe and the US.

The account of those events published by Wesley Clark, then Supreme Allied Commander, Europe, revealed almost daily conflict between him and the Pentagon. With the US providing almost all of the military hardware, its generals resented the idea that diplomats from 19 countries, including Luxembourg and Iceland, could veto targets.

Worse was to come with 11 September. Lord Robertson invoked Article Five of the Nato treaty – the alliance's constitution – which spells out the commitment to collective defence. Although this gesture looked good, it soon became clear that the US had no intention of involving Nato in its military reprisals. Russia point ed out that its assistance in Central Asia was more helpful to Washington's war in Afghanistan than anything Nato could offer.

None of which is to suggest that Nato has no importance. It has unique assets: in particular its planning centre at the Supreme Headquarters Allied Powers, Europe (Shape) at Mons in Belgium. The alliance remains in practice the only organisation capable of a multinational military operation. But, like any military bureaucracy, it is conservative and slow to reform. For example, it still operates an oil pipeline network through Europe – to ensure its tanks could be refuelled if the Soviets invaded. As one diplomat put it: "There are certainly people asking – what does Nato now do?"

Urged on by the US ambassador to Nato, Nicholas Burns, Lord Robertson has tried to expand the organisation's remit, to extend its reach in anti-terrorism and "asymmetrical threats" in particular, an area where Russia now sees a joint interest.

The secretary general also wants to streamline the organisation, reducing some of the endless committee work and taking some more powers for himself. But this will not be easy. As one diplomat from a small Nato country put it: "Streamlining, reducing the committees and giving more power to the secretary general may diminish the inter-governmental character of the organisation. Maybe we should combat terrorism, but should we forget the other goals of the organisation?"

Finally, there is the relationship with the EU, whose foreign policy ambitions are growing. According to current plans, Nato will be linked in to the new EU rapid reaction force, due to be ready by next year. Diplomats are working hard to ensure that this primarily peacekeeping force will have assured access to the planning capabilities at Shape (although the deal is currently being held up by Greece).

But here lies the final danger for Nato. Both the US and the Europeans believe the EU should take more of the military burden of peace-keeping on this continent, for example in the Balkans. At the same time, America has never looked less likely to use Nato to wage big military campaigns. In the long term that could leave Nato with a diminished, back-seat role – a thought that may not be too upsetting in Moscow.