Tony Blair has welcomed the Northern Ireland ceasefire monitor's verdict on the IRA, saying its "campaign is over".
He was speaking after the Independent Monitoring Commission said the IRA had changed radically and some of its most important structures were dismantled.
The prime minister said politicians now had a "unique opportunity" to reach a "final settlement".
The government hopes the report will help its efforts to restore devolution before the 24 November deadline.
Out of the IMC's 12 reports so far, it is its most positive report about IRA activities to date.
It said the IRA does not want to go back to violence and no longer has the capacity to mount a sustained campaign.
The report indicates that a number of key parts of the IRA's structure have been dismantled or substantially reduced.
Mr Blair said there was "now a consensus across all main players in the politics of Northern Ireland, that change can only come through persuasion and not through violence of any sort".
"The IRA has done what we asked it to do, and while issues like policing remain to be solved, the door is now open to a final settlement, which is why the talks next week in Scotland are going to be so important."
Presenting the report, commissioner Lord Alderdice outlined how the IRA leadership was "clamping down" on criminal activity by its members.
"That doesn't mean that criminal activity by all members has stopped but the leadership has made public statements and internal directions, investigated incidents of breach of the policy, even expelled some members and has emphasised the importance of ensuring that business affairs are conducted in a legitimate way," he said.
The report said there was not enough evidence or intelligence information for it to say who killed Denis Donaldson, the self-confessed British spy and former head of Sinn Fein's office at Stormont, who was shot dead in County Donegal in April.
DUP leader Ian Paisley said he was encouraged that his party's pressure was working and if Sinn Fein signed up to policing there could be a deal.
"If the police question is settled absolutely on a democratic basis and principle we would have come a long way along the road," he said.
Sinn Fein President Gerry Adams said: "The DUP don't have anything other than very limited options.
"They will or will not participate in power-sharing arrangements. If they don't participate they are condemning people here, but particularly their own constituents, to second class public services, run by second class fly-in, fly-out British ministers.
"All the DUP can do is to delay, is to attempt to slow down, but they can't stop the process of changing."
Northern Ireland Secretary Peter Hain said: "We believe this report does lay the basis for a final settlement of the conflict in Northern Ireland and an end to the political stalemate.
"As such we think it presents a unique opportunity for this generation of politicians to reach that final solution, an opportunity the government hopes the parties will now seize and not miss a fantastic window."
In a statement, Irish Taoiseach Bertie Ahern "warmly welcomed" the report's findings.
"These positive and clear-cut findings are of the utmost importance and significance," he said.
Referring to talks due to take place in Scotland next week aimed at restoring devolution he said: "It is time to make decisions and for Northern Ireland to look to the future."
The SDLP's Alasdair McDonnell said: "What's very clear is that the Army Council has moved forward and dismantled the war machine.
"I welcome the moves the IRA have made."
PUP leader David Ervine said he did not accept that the IMC was independent.
"There is a trend that suggests that our war is over," he said.
The UUP's Dermot Nesbit said that while "IRA terrorism and paramilitary activity" has ceased the "organisation remained".
"The IRA is still an illegal organisation and it is using illegally gained funds for political purposes," he said.
The Independent Monitoring Commission was set up by the British and Irish governments in January 2004.
Most of its reports have concentrated on activity by paramilitary groups in Northern Ireland.
However, it also monitors the "normalisation" of security measures in the province.
Its four commissioners come from Northern Ireland, the Republic of Ireland, Britain and the US.