The BBC's Jennie Bond: "Most of the money for the memorial will come from public funds"

Prime Minister Tony Blair and Chancellor Gordon Brown are reported to have already agreed a proposal for a fountain named after Diana in one of London's royal parks.

Mr Blair told The Mirror that the government was working on a memorial to mark the life of ''a very remarkable woman''.

Chief executive of homelessness charity Centrepoint, Victor Adebowale, backed the proposals.

"For the charity, a lasting memorial to their late patron would be continued public support to put an end to the scandal that is youth homelessness, and an end to the prejudice that Diana tackled so well," he said.

Nigel Slater at the Leprosy Mission, of which the princess was patron, said it was already building a major centre near Delhi, which is to be named after the princess.

The Diana memorial at Althorp House

"She helped not only to raise money but to remove the stigma associated with leprosy as she did with Aids," he said.

A Red Cross spokesman said they hoped the tribute would help remind people of her "important contribution" to the landmine campaign.

The news was also welcomed by London's Great Ormond Street Hospital, which has benefited from the Diana, Princess of Wales Memorial Fund.

Roger Singleton, chief executive of Barnardos children's charity, for whom the princess was president from 1984 to 1996, said: "Members of the public can remember her as a person, lay flowers and think about her life."

The memorial has also drawn support from Dr Andrew Purkis, chief executive of the Diana, Princess of Wales Memorial Fund, who said he was pleased that "the government is attending to this piece of unfinished business".

Mohammed al-Fayed has created a shrine to Diana and his son Dodi at Harrods

And Diana's brother, Earl Spencer, who has had a memorial built in the grounds of her childhood home, Althorp House, said it was appropriate because the public were in favour of a lasting tribute.

But he said he did not want it to be a representation of her image.

A Downing Street spokesman said any plans would be made in consultation with the royal family, while there would also be talks with the Royal Parks over a site for the memorial. "It is important to get this right,'' he said.

Mr Blair's pledge comes after increasing calls for a lasting memorial to the Princess.