Plans to offer a "selective" amnesty to illegal immigrants in the UK have been backed at the Lib Dem conference.
The Lib Dems say immigration is an opportunity, not a threat
Home affairs spokesman Nick Clegg said it was "absurd" to suggest the 500,000 people in Britain illegally could all be deported - at £11,000 a head.
Instead after 10 years they should get the right to earn citizenship, he said.
The Tories said the Lib Dems were "living in a fantasy world" while Labour said it would be "a strong pull for waves of illegal immigration".
The government says it does not know how many illegal immigrants are in the UK. However, pressure group Migration Watch puts the figure at between 515,000 and 870,000.
Mr Clegg said it was "fantasy politics" to discuss mass deportation of the "underclass" of people who do not pay tax, lack employment rights and access to healthcare and banking - when the government does not know where most of them are.
Rather than spend billions trying to deport them all, it would be better to have a new border police force and focus enforcement efforts on people traffickers and criminals, he said.
And people who have settled in the UK with their families should be given a chance to become citizens.
Under the Lib Dem plan they would have to pass language tests, demonstrate a long-term commitment to the UK and have no criminal record.
There would also be a charge - possibly of several thousand pounds - or a requirement do community service.
Illegal immigrants would be given an "earned route" to citizenship, beginning with a two-year work permit.
Party president Simon Hughes said it would end "the perpetual twilight world for those who have been here for so long".
A Lib Dem source denied the plan would lead to an increase in illegal immigration - but admitted it would not go down well with anti-migration campaigners.
Mr Clegg said while the Tories and Labour were locked in a "nasty" bidding war over who could be the toughest on immigration, the Lib Dems should stand up for "freedom, tolerance and diversity".
"I do not think our party should ever be cowed into silence by fear of controversy," he said.
But for the Tories, shadow immigration minister, Damian Green said it was the Liberal Democrats who were living in a "fantasy world".
"These proposals will encourage people to break the law and enter the UK illegally.
He added: "This will send out a message that Britain's borders are well and truly open to everyone in the world."
And for the government, immigration minister Liam Byrne said the introduction of compulsory ID cards would make things tougher for illegal immigrants.
He added: "I believe those here illegally should go home - not go to the front of the queue for jobs and benefits.
"That's why we're now deporting someone every eight minutes and doubling our frontline enforcement resources."
Mr Clegg says more should be spent on a new border police force
The Joint Council for the Welfare of Immigrants congratulated Mr Clegg for promoting "a reasonable debate on an issue which is all too often the subject of emotive sound bites".
But chief executive Habib Rahman said the 10-year threshold was too high and recommended a seven-year minimum instead.
"This would logically build on the seven-year policy which already exists for migrants who can demonstrate family relationships, including to children, in the UK," he said.
Andrew Green from pressure group Migrationwatch said: "I am glad that the Liberal Democrats have backed off claims that an amnesty would save the Treasury money.
"In fact, our calculations show that it would cost £1 billion in the first year and up to £5 billion a year in later years. There is no case for this, especially as anyone granted an amnesty would soon be replaced by others."
The Lib Dems also wants work permits for non-EU nationals to be made more expensive for employers, so the money can be spent on training up British workers for other jobs.
On the second full day of their annual conference, the Lib Dems backed proposals to cut the basic income tax rate by 4p, scrap council tax and increase green taxes - including a £10 charge on short haul flights and £2,000 road tax for gas-guzzling vehicles.