The act gives police sweeping new powers
In a major policy U-turn, Mr Blunkett agreed to drop proposals making incitement to religious hatred a criminal offence.
Mr Blunkett's concessions were designed to clear the way for the controversial Anti-terrorism, Crime and Security Bill to be on the statute book by Christmas, as he had pledged.
Despite the concessions, the bill gives police and security services significantly more powers.
It allows foreign terror suspects to be detained without trial where they cannot be deported - those arrested will have a right to appeal although not to a full court of law.
That power will, however, have to be renewed by Parliament after 15 months.
Other measures mean police can access more data, such as tax returns, but the government has agreed an amendment so disclosure must be proportionate to tackling terrorism.
The government stressed there were no plans to introduce a separate bill on the dropped religious incitement provision.
Blunkett 'pleased'
A spokesman for Mr Blunkett said he was "very pleased" and felt the government had "largely got the bill it wanted".
But the concessions he had to offer to make the bill acceptable to opposition parties included:
The Conservatives said the proposed amendments made the bill acceptable.
The proposed legislation on incitement to religious hatred proved the most controversial aspect of Mr Blunkett's bill, with opposition parties dubbing it hastily conceived and ill thought-out.
Home Office minister Beverley Hughes described the passing of the bill as a "major achievement."
She told BBC News: "I can say to the British people tonight we have done our very best to respond to what we felt were gaps in our current legislation to meet new terrorist threats."
As for the failure to make incitement to religious hatred a criminal offence, she said this was a "lost opportunity" and warned there may not be time in this parliament to pass it in separate legislation.
Lib Dem Home Affairs spokesman Simon Hughes had earlier told MPs his party would continue to "fight for the time to legislate properly" on the issue.
He said if the government wanted to legislate on it, it would find the parliamentary time.
But his remarks were dismissed by the home secretary who said it was too late, having successfully defeated a law on incitement to religious hatred, for Mr Hughes to begin speaking out in favour of one.
Mr Blunkett hit out at the "triumphalism" of the opposition parties, and in particular the Lib Dems, who had succeeded in defeating the government on this issue.
"We had a rational debate on it, the government have conceded that we have lost on it, the House of Lords have voted twice substantially against it - but it isn't a matter for anyone to rejoice in."
Conservative compliments
Mr Blunkett praised the "sensible" attitude of shadow home affairs secretary Oliver Letwin, in helping to reach a compromise on the bill.
Mr Letwin said debating the bill had been an arduous process that had "proved the value of parliamentary process and parliamentary checks."
He said Mr Blunkett had ended up with a better bill as a result.
For the Lib Dems, Mr Hughes told BBC Radio 4's Today programme he still had concerns about the new laws.
"The new terrorism act increases the power of the executive substantially, invades the privacy and reduces the freedom of the individual, potentially significantly," said Mr Hughes.