The prime minister has conceded he did not expect the security situation in Iraq would become so unstable.
The PM told US TV that democracy will be delivered to Iraq
Speaking to American television following talks with President George W Bush, Tony Blair said the coalition underestimated resistance.
He insisted that the 30 June deadline for handing back power to the people of Iraq would remain.
But Tony Blair and the coalition have been dealt a blow after Spain said it would pull out 1,200 troops from Iraq.
The new Spanish Prime Minister Jose Luis Rodriguez Zapatero has said that a new United Nations resolution on Iraq, which Tony Blair is seeking, will not be acceptable.
Speaking just hours after his socialist government was sworn in, Mr Zapatero said that Spanish troops will leave the Polish-controlled central zone in Iraq "in the shortest time possible".
The UK Ministry of Defence has called the withdrawal regrettable, but a spokesman said they respect the decision and that they valued the contribution Spanish troops have made over the last eight months.
The Prime Minister told the ABC This Week programme that he always foresaw resistance from insurgents over the presence of coalition forces.
"It's tough, that's for certain. What we are trying to do is create a stable and democratic country.
"I always expected these people would resist. Iraq is a
symbol of the struggle, throughout the Muslim and the Arab world," he said.
Mr Blair added that the coalition's commitment to Iraq will be tested in the time limit set for the transfer of sovereignty.
"If we are able to transfer power to the Iraqis, to have a broad-based government in Iraq, leading to a new constitution early next year, then democratic elections, that is a huge defeat for the forces of reaction and terrorism everywhere," he said.
The Prime Minister went on to say that London and Washington were prepared to accept the proposed method put forward by the UN envoy to Iraq, Lakhdar Brahimi.
He called those on the Iraqi Governing Council an "intelligent, dedicated and determined group of people".
"We have got to help these people. And if we help them, the signal that sends out, it is a big signal of hope to the region and a big defeat to the terrorists."
Following a summit with President Bush on Friday, Mr Blair backed Mr Bush's support for a controversial plan by Israel to unilaterally withdraw from the Gaza Strip and pull out of the West Bank leaving a number of settlements in place.
The prime minister still has a healthy US fan base
Mr Blair insisted that the plan did not hamper the road map to peace between Israel and Palestine, even though it remained the view of the UK government that the Israeli settlements were illegal.
He said: "I really think there is one important thing that people are missing in what's happened. And that is the importance of a genuine disengagement by the Israelis from Gaza and parts of the West Bank."
Mr Blair added that the international community should now give economic support to Palestine.
Both Mr Blair and Mr Bush will face new pressure from a book which claims the US president began planning for the invasion of Iraq in December 2001.
Mr Bush offered Mr Blair the option of not sending British troops because of fears it could lead to the prime minister losing office, according to Washington Post reporter Bob Woodward.
In his book he blames the CIA for faulty intelligence about Iraqi weapons of mass destruction (WMD).
Asked about the failure to find WMD, Mr Blair told American television that he would wait until the CIA-led Iraq Survey Group, searching for such weapons,
had concluded its hunt.
"There are no stockpile of weapons that has been found, that is true. There is still a process to go through," he said.