The Union flag and St George flag have bedecked houses, cars and businesses across the country for weeks during the two key events.
The home secretary said pride in the flag must continue if the UK is to halt National Front and British National Party (BNP) efforts to foster fear and mistrust across the country.
Mr Blunkett made the call in a speech to the Social Market Foundation in London outlining a "new agenda" for tackling racism in the UK.
Mr Blunkett used the speech to announce the setting up of a new Race Equality Advisory Panel to advise ministers on policy.
Prejudice
But he stressed that responsibility for dealing with racism "wherever it raises its ugly head" lay not just with politicians but with wider society.
Many people from ethnic minority backgrounds were being held back at work, he said.
"Employers in particular have responsibilities - for recognising and rewarding the best talent on offer to them, and rooting out discrimination in the work-place," said Mr Blunkett.
"The 'reclaiming of the flag' for the Golden Jubilee and the World Cup must be sustained if we are to see off the BNP and the National Front in their efforts to foster fear, mistrust, and exploit concerns which emerge at a time of change."
The home secretary said he wanted to see "tangible improvements" in the scourge of racism, particularly in the criminal justice system.
Economic benefits
"I am responsible for ensuring that everything possible is done to eliminate discrimination in the criminal justice system, the immigration and prison services, and in the policing of our towns and cities," he said.
"I want to see tangible progress in the services for which I am accountable while I am home secretary."
Mr Blunkett said economic migrants had brought huge benefits to the British economy, but he would continue to argue for changes to the asylum and immigration systems.
He was speaking after the UK pledged about £5m to beef up security at the French end of the Channel Tunnel.
The package was among a number of measures agreed on Monday between France and the UK in an attempt to progress to the eventual closure of the nearby Sangatte refugee camp.