A task force to tackle Muslim extremism "head on" is being set up in the wake of the London bombings.
The prime minister denied Iraq had been a catalyst for extremists
Tony Blair said after meeting Muslim leaders and opposition politicians at Number 10 that it was time to confront and defeat "this evil ideology".
The network will seek to dissuade young Muslims from turning to extremism.
Meanwhile, a New York Times report says intelligence officials thought no group had the capacity or intent to attack the UK three weeks before the blasts.
Quoting a Joint Terrorist Analysis Centre leaked document, the newspaper says Britain's terror threat level was lowered after this advice was received.
BBC correspondent Margaret Gilmore said a security source had confirmed words quoted by the newspaper were accurate but taken out of context.
The source said although the threat level was lowered, it remained extremely high.
The leaked document is also reported to say the continued occupation of Iraq would stimulate "terrorist-related activity in the UK".
But this was denied by Tony Blair after Tuesday's Downing Street meeting.
"Of course these terrorists will use Iraq as an excuse," Mr Blair said.
"They will use Afghanistan. September 11, of course, happened before both those things and then the excuse was American policy on Israel."
Neither No 10 nor the Foreign Office would comment on the New York Times report.
The 25 Muslim leaders, who will set up the new task force, are meeting on Tuesday evening an action plan.
The prime minister's official spokesman said they would be taking the debate on Islamic extremism forward on religious grounds, by encouraging political engagement and at a community level.
'Merchants of evil'
The group, which includes general secretary of the Muslim Council of Great Britain Sir Iqbal Sacranie, will then meet Home Secretary Charles Clarke on Wednesday to discuss the task force.
Speaking after the meeting, Sir Iqbal said: "There was clear determination, a clear commitment from all of us to really find those measures which will enable us to deal with the crisis."
SOME OF THOSE ATTENDING
Sir Iqbal Sacranie - Muslim Council of Britain
Yousef Al-Khoei - Al Khoei Foundation
Zaki Badawi - Muslim College
Sadiq Khan MP
Shahid Malik MP
Imam Ibrahim Mogra
But it was "absolutely vital" that the Muslim community, which had already done some tremendous work in mosques across Britain, be treated as part of the solution.
Conservative leader Michael Howard said it was the responsibility of Muslim leaders to reach out to youngsters to prevent the "merchants of evil" from influencing them.
Liberal Democrat leader Charles Kennedy said representatives had agreed the task force would be centrally driven but "locally achieved".
Mr Blair said the meeting was "heartening" and showed "a remarkable degree of unity across the community" and political parties.
He also said the law on inciting hatred and terrorist violence was likely to be strengthened.
After the meeting, Metropolitan Police Commissioner Sir Ian Blair called for a new offence to tackle extremist preachers who had proved difficult to prosecute.
Meanwhile, police have been given permission to keep in custody until 23 July a West Yorkshire man arrested on 12 July.
The man, 29, was arrested on suspicion of the commission, instigation or preparation of acts of terrorism and is being held at a central London police station.
Mr Blair also met Afghan President Hamid Karzai on Tuesday as the UK commits more troops to the country ahead of parliamentary elections later this year.