By Steve Schifferes
BBC News website political reporter
Tony Blair has made it clear that he wants to put further reform of the public services at the heart of his third term.
The private sector may supply more NHS services
At his first news conference since returning to office, the prime minister said that "our task is to deepen the change, accelerate reform, and address head-on the priorities of the British people in the NHS, schools and welfare reform".
He announced there would be White Papers on further reform to health and education - signalling the need for possible legislation.
Mr Blair went on the stress the need for the "renewal" of the public services.
"That means driving innovation and improvement through more diverse provision and putting people in the driving seat" with more choice and more personalised provision for parents and patients, he said.
It also means this could become one of the most explosive issues in this Parliament, with the potential for a clash not only with his own backbenchers but with the Chancellor, Gordon Brown.
In Mr Blair's analysis, the electorate gave Labour a conditional mandate to deliver on the reforms to the welfare state that they had promised in 1997.
In his view, reform of the public services - providing good schools and hospitals with more choice - is vital to ensure that the middle class do not desert the public sector entirely.
Failing schools might be taken over by their rivals
He pointed to the example of inner London, where one in five parents send their children to private schools, as the kind of danger Labour would face if people lost faith in the ability of state to provide decent education.
His concern is that, if this trend continued and spread throughout the country, support for funding high-quality public services would be eroded, and a two-tier public/private system of health and education would begin to emerge.
And he waged a vigorous campaign during the election to paint the Tories as the party of two-class provision, with people who could pay receiving private operations more quickly.
Reform or die
But the prime minister and his key advisors believe that in order to save the public sector, it needs radical reform.
He wants this to take place on two fronts.
First, from the point of view of the parent or patient, Mr Blair wants to widen the choice available and improve the quality of service and the speed of delivery.
In the NHS, the government is already promised to allow all patients the choice of up to five hospitals for minor operations by next year, and to allow them to choose any hospital by 2008.
It has also pledged to get waiting times down to 18 weeks for all operations.
In education, Mr Blair wants to increase parental choice, especially at secondary level, by introducing a range of specialist state schools, privately-funded City Academies, and other independent or voluntary initiatives.
The idea is to drive up standards and allow new, innovative approaches to educational provision to flourish, especially in inner cities.
To get more choice, Mr Blair must increase the supply of hospitals, clinics and schools.
And he appears determined to use the private or independent sector to do so.
During the election campaign, the health secretary said he expected private provision - especially through the increased use of diagnosis and treatment centres - to make up 20% of NHS output by 2008.
In education, the government is planning a big expansion of City Academies and looking at the provision of school services by the voluntary sector.
The new junior Schools Minister, Lord Adonis, Mr Blair's former education advisor, is also known to favour the abolition or reduction in the role of local education authorities - and wants more powers for parents and governors to expand good schools, and take over bad ones.
Mr Blair is determined to drive change through on both fronts, because he believes competition and "contestability" will both improve standards and keep costs under control.
That will become increasingly important in his third term as the big expansion of public spending is likely to come to a halt after 2008.
However, Mr Blair's reform plans face some formidable obstacles.
First, there are fears that if his plans for greater competition are successful they could lead to the closure of local hospitals or schools which are less successful at attracting new patients or pupils.
Closures could lead to big local battles (as the government found to its cost when an independent MP was re-elected in Kidderminster because he opposed a local hospital closure).
Second, trade unions and professionals in health and education are likely to oppose many of the reforms.
Doctors are already worried that independent diagnostic test centres are using lower standards and teachers worry about the standards and salaries in independent sector schools.
Third, the process of markets and selection may be difficult to apply in the public sector.
The plan to introduce city-wide choice in secondary school applications in London and Birmingham has led to chaos, with some parents receiving no offers of a place at all.
And patients may not be best placed to judge which hospital offers the most effective treatment in many specialities, with published figures like death rates likely to be misleading (as more advanced teaching hospitals often have higher death rates because they take on the difficult cases).
All these concerns will no doubt play on the fears of some Labour backbenchers who believe that Labour's increasing use of the private sector means it is departing from its core principles.
The key to whether the prime minister will be able to drive through reform will be the attitude of his chancellor.
Mr Brown's supporters played a key swing role in the struggle over foundation hospitals in the last Parliament, moving back to support the government just in time to save it from defeat.
During the election, Mr Brown pledged his commitment to increasing consumer choice in health, education and social services.
But how he chooses to deliver that commitment will be crucial to the legacy that Mr Blair hopes to leave when he finally departs from office.