Diplomas in vocational subjects such as engineering and health and social care are to be introduced for 14 to 19-year-olds in England.
They will be set at three levels and cover 14 specialised areas of study.
GCSEs and A-levels will stay. A review had called for a single diploma covering academic and vocational study.
In future there will be an expectation that everyone will know the basics of reading, writing and arithmetic by the time they leave school.
'Focus on basics'
The proposals are the government's response to the ideas put forward by the working party on 14-19 education, chaired by the former chief inspector of England's schools, Sir Mike Tomlinson.
He has said he fears that they will perpetuate, not end, the divide between academic and vocational studies.
KEY POINTS
This could not continue in an increasingly competitive world.
She wanted a "relentless focus on the basics" so all young people left school "competent in the three Rs".
The Tomlinson report had called for tests in "functional" numeracy and literacy, which existing GCSEs failed to assess.
Ms Kelly said too many young people were "deficient" in this regard and "unattractive" to employers.
In future, no-one would be able to get a high grade in English or maths GCSEs without "mastering the basics".
Specialised diplomas
The new "specialised diplomas" will require specialised content relevant to the diploma subject area, relevant GCSEs and A-levels, and work experience, the white paper says.
"My greatest fear is that vocational will continue to be seen as second best "
Four more subjects would follow in 2010, with all 14 available by 2015.
They would be designed in close collaboration with employers in the form of the sector skills councils - and, at the higher level, with universities.
The government is promising to "increase the capacity of the education system to offer vocational education" in both schools and colleges.
But it is not saying how this is to be paid for.
There will be extra opportunities in diplomas and in A-levels for the brightest students to shine, with an extended project and higher education modules available to school and college students.
There is to be a "general" diploma for those who achieve the equivalent of five GCSEs at grades A* to C, including English and maths.
This is to be the new performance tables benchmark by 2008. If it applied now, almost six in every 10 students aged 16 would not reach it.
HAVE YOUR SAY
Shadow Education Secretary Tim Collins said the biggest disappointment was that Ms Kelly had not accepted the central Tomlinson recommendation for an over-arching diploma.
"How can you expect to achieve parity of esteem if one set gets A-levels and others get a diploma and there is no overlap between the two?"
Liberal Democrat education spokesman Phil Willis said ministers had "abandoned the fundamental principle" of making academic and vocational qualifications of equal value.
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