Charles Kennedy has said the Lib Dems are moving from being a "party of protest to a party of power" in an upbeat message to end their conference.
Kennedy: Three party British politics
Mr Kennedy, buoyed by recent opinion polls and by-elections, said the UK was now in a new three party era.
At the next election voters would have a choice between two essentially conservative parties, or the real alternative of the Lib Dems, he said.
Labour and the Tories argue the Lib Dems still lack credibility.
BBC political editor Andrew Marr said Mr Kennedy's speech was personal and well-thought through, with the strongest passage his description of the "sullen and increasingly angry" public mood about Iraq.
The Lib Dem leader began his speech in Bournemouth on a sombre note, saying the torture felt by Ken Bigley, the man held hostage in Iraq, and his family must be "incomprehensible".
He said they were at the forefront of his thoughts and prayers and said the conference displayed the "luxury of democracy".
He then turned to domestic politics, arguing that the Lib Dems were now setting the "political weather" on issues like scrapping university tuition fees and replacing council tax.
Mr Kennedy said the Lib Dems were bringing a "breath of fresh air" to British politics: "That's why we're on the move."
He acknowledged recent electoral successes meant people were now asking whether the party was up to the challenge and if they could be sure about what they stood for.
Much of his speech was devoted to addressing those questions, saying the party's core values of freedom, fairness and trust "matched the increasingly liberal instincts of 21st Britain".
Mr Kennedy highlighted Lib Dem plans to offer free personal care for the elderly, improve school standards, increase education in prisons and help crime victims.
The Lib Dems have to be prepared to "stand alone" against knee-jerk responses to cultural issues and not "pander to the lowest denominator" on asylum and immigration but make the systems fairer and faster.
But he also turned his fire on the other parties, saying the Tories had failed to connect with people and "hark back to a Britain that is no more".
He branded them as the "third party" in huge swathes of the country.
Iraq is a galvanising factor, says Kennedy
"In so much of the country, a vote for the Conservatives is a wasted vote," said Mr Kennedy in a deliberate reversal of previous attacks on his own party.
He told the conference that with the Tories on the way to extinction, the next task is to continue eroding the Labour vote while focusing fire on the Conservatives to finish them off.
"The British people have probably not more than 225 days left to choose between two essentially conservative parties - and the real alternative which is the Liberal Democrats...
"And we, increasingly, are winning the choice."
Mr Kennedy also launched another fierce attack on Tony Blair's decision to go to war in Iraq.
He said it was time the prime minister answered the crunch question of whether he promised to follow America into the conflict "come what may".
He predicted the Iraq issue would galvanise people to "make their views known through the ballot box".
"Never again must this country be led into war on the basis of questionable intelligence," he said.
"Never again must this country be sold an incomplete and false prospectus as a basis for unilateral military action without the sanction of the United Nations."
Mr Kennedy stopped short of the rallying cry issued by his campaigns chief Lord Razzall who told the conference the Lib Dems would be the next non-Labour government.
But Labour general election co-ordinator Alan Milburn said the Lib Dems had still not passed the credibility test.
It's not just their sums that don't add up - their policies don't add up," said Mr Milburn.
"They masquerade as a party of Liberal leftism - but this week has begun to lift the veil on policies that would damage hard-working families and hit the poorest hardest."
Conservative chairman Liam Fox dismissed as "utter nonsense" Lib Dem attempts to portray themselves as political heavyweights.
"Charles Kennedy's foolish bravado ignores the fact that under Paddy Ashdown in 1996, the Lib Dems controlled 55 councils - this figure has now dropped to 30...
"It seems that on election statistics they are just as out of touch with reality as they are on policy proposals."