The UN has eased sanctions on Iraq
In an exclusive interview with the BBC, Mr Blair said military action against Saddam Hussein is not inevitable.
But he added: "I certainly endorse the policy of doing everything we can to get rid of Saddam Hussein if at all possible."
Asked whether this might include a military assault, he replied: "That depends".
'Oil for food'
Mr Blair's words followed the easing of United Nations sanctions on Iraq.
The new scheme is designed to make it easier for the country to import goods for civilian use, while tightening the military embargo.
A revised "oil for food" programme has also been extended for six months.
The move has been denounced by Baghdad, which said it would prevent development of the Iraqi economy.
Weapons inspectors
The easing of sanctions is not being seen as a sign that the United States is softening its line on Iraq.
US secretary of state Colin Powell has indicated the US might be prepared to take action even if weapons inspectors were allowed back in.
UN talks with Iraq over the re-admission of weapons inspectors are due to resume shortly.
Weapons inspectors
In an interview with BBC Television's Newsnight programme, Tony Blair said he shares US President George Bush's judgement that toppling Saddam Hussein is a desirable goal.
But he insisted no decision on military action in Iraq has been taken.
He said it would "make a difference" if Iraq allowed UN weapons inspectors free access to his arsenals.
'Open question'
"I have certainly made up my mind, as indeed any sensible person would, that that region of the world - most of all the people of Iraq - would be in a far better position without Saddam Hussein.
"Does that mean that military action is imminent or about to happen?
"No. We've never said that."
He said how the issue would be dealt with is an "open question".
'Axis of evil'
Mr Blair pointedly refused to endorse Mr Bush's use of the phrase "axis of evil" to refer to Iraq, Iran and North Korea, despite being challenged about it eight times.
He said: "We make our own speeches.
"I think the president was right to say weapons of mass destruction are a real issue and evil in the world.
"What I am saying to you is that what the president was referring to is the issue of weapons of mass destruction and support for international terrorism.
"There are real issues in respect of all those countries."
He added: "You can sit here and put to me phrases that President Bush and other leaders have used all day.
"I choose my own phrases. I choose my own way."
'Poodle' accusation
He also denied being Mr Bush's "poodle", as has been alleged in sections of the British press.
"What they want to do is to pull us apart, to say to people you have to choose between your relationship with Europe and your relationship with America.
"I totally, fundamentally dispute that.
"We are stronger if we are a partner of America in Europe and we are stronger, in Europe, if we are a partner of America.
"People who try to pull apart Britain and America or Europe and America are doing a disservice to all of us. I passionately believe that," Mr Blair said.