His comments at question time came after German Chancellor Gerhard Schröder insisted he would not permit Nato to send a ground force into Kosovo without a ceasefire.

But the prime minister rejected the suggestion of a gulf between the German view and that of the UK Government.

All options remained open to the allies, Mr Blair told MPs.

"I think the German chancellor is right to say that the air campaign is working," he said.

Germany's Chancellor Schröder insists he would not support a ground war

Reports of riots and desertion emerging from Serbia showed morale had dropped in the country.

But the day after he declared a ground war in Kosovo would be "unthinkable", Chancellor Schröder has continued to insist Nato's air offensive strategy cannot be changed.

"We are against sending in ground troops. That is the German position, supported unanimously by members of the German Parliament.

"That is also the present position of Nato, that is to say, the strategy of the allies can only be changed if all members agree on it.

Tony Blair: "The air operations are working"

"I will not participate in the special British debate on war theory."

Italian Prime Minister Massimo D'Alema, who met Chancellor Schröder on Tuesday, has also suggested a pause in the bombing campaign to seek a diplomatic settlement.

But the UK Government is continuing to insist the air offensive will not stop until Nato's demands are met.

In the Commons, Conservative leader William Hague told the prime minister reports of apparent differences within Nato bolstered the position of Serbian President Slobodan Milosevic.

Mr Blair again insisted the allies remained united and said the air war was working.

Blair heard refugees' accounts of the war in Albania

He said "absolutely no difference" existed between his position and US President Bill Clinton, whom he said he knew extremely well.

"He is as committed to this campaign as anybody else," Mr Blair said.

The prime minister vowed not to compromise on Nato's core aims in the Kosovo conflict.

"The Nato campaign will go on until our basic demands are met - that his troops go out, that our troops go in and the refugees go back," he said.

"In the end, the Kosovo Albanians have to feel free to go back and they cannot do this unless there is an international military force."

Mr Blair referred to his own recent visit to Bulgaria and Albania and the stories of atrocities he had heard first-hand from refugees.

"The evidence that's being compiled by the United Nations are appalling stories, every one of them, of the most terrible acts that are being done in Kosovo."

Air strikes have not greatly damaged Serb troops, the UK admits

Earlier, a senior UK military commander admitted Nato had failed to inflict "significant casualties" on Serbian forces.

The admission came days after the prime minister, in an article for BBC News Online, said "the equivalent of a whole brigade" had been destroyed by Nato.

A British army brigade is composed of 4,500 troops, with 76 tanks and other armoured vehicles.

But at the daily Ministry of Defence on Wednesday Air Marshall Sir John Day suggested the casualty total among Serb troops could be lower than that figure.

"Milosevic's forces are gradually being weakened throughout Serbia and especially in Kosovo.