Tony Blair remained defiant over the failure of EU budget talks after a bitter row between Britain and France.
Tony Blair was visibly heated after the talks
The prime minister refused to accept a freeze on the UK's £3bn rebate unless France was prepared to accept reform of the Common Agricultural Policy (Cap).
Mr Blair said the rebate was the result of a "distortion of expenditure" and "if we remove the rebate, we have to remove the reasons for its existence".
French President Jacques Chirac condemned the UK for not compromising.
He had initially said it would not be enough to freeze the British rebate and that it should be scrapped altogether, but the compromise deal was offered on Friday afternoon.
Mr Chirac refused to discuss any cut in farm subsidies, saying the rebate should "under no circumstances be linked to a reform of farm expenditure".
Foreign Secretary Jack Straw accused other EU leaders of wanting
a European Union "trapped in the past".
He told the BBC: "It is essentially a division between whether you want a European Union that is able to cope with the future or whether you want a European Union that is trapped in the past. That is the fundamental change before us. And it is not one Europe can dodge."
But as the summit ended in deadlock, the current EU president, Jean Claude Juncker, said the EU was now in "a deep crisis".
Mr Blair, who appeared visibly heated at a press conference following the talks, attacked the Cap, which sets EU farm subsidies.
He said funds that would be better deployed on science, technology and education were being diverted to agriculture .
"That is not a sensible prioritisation of Europe's spending in the early 21st century," he said.
"That does not correspond to the reform that Europe needs if it is to be fit for purpose in the early 21st century."
'EU makes sense'
And, calling for the EU to move forward, the prime minister said: "This is a moment when Europe has to take measures of fundamental change and reform.
"I have always believed in Europe. The EU as an idea makes sense in today's world.
"It can either renew itself or find itself in increasing difficulties."
British officials said their opposition to the compromise deal had the support of four other countries - Finland, Spain, Sweden and the Netherlands.
But the French were not alone in their criticism of the UK.
German Chancellor Gerhard Schroeder said: "A substantial effort has been made to overcome national egoism. Those responsible for failure bear heavy responsibility.
"If the UK and others were ready to lift their rejectionist attitude we could make progress."
The UK is set to take over the EU presidency at the start of next month.
Earlier the leaders put the EU constitution on hold by abandoning a 2006 deadline for ratification after French and Dutch voters rejected the treaty in recent referendums.
Mr Blair said European leaders had to respond to these results by listening to their citizens and trying reconnect with them.
The proposed constitution, which needs to be ratified by all 25 member states, is designed to define the future direction of the union and the way it is run.