Tony Blair has chaired the first meeting of his new Cabinet, with Alan Milburn back at the top table.

The new Cabinet met for the first time on Thursday morning and discussed the international situation and domestic issues.

The most significant addition to the Cabinet was Milburn, who was made chancellor of the Duchy of Lancaster and Labour's general election chief.

The former health secretary made the dramatic political comeback little over a year after he quit the government to spend more time with his family.

Milburn will be based in the Cabinet Office but will also have an office in Number 10.

The appointment came after days of wrangling in a bitter power struggle with chancellor Gordon Brown.

Key Blair ally Milburn only accepted the role after he was convinced it would have real clout.

The Darlington MP will now have a major say in the content of the Queen's Speech which will take place on November 23.

Cabinet meeting

Ahead of the party conference, the prime minister will use a political Cabinet meeting next week to flesh out plans for the months leading up to next year's general election.

Although Milburn did not get the chairmanship of the Labour Party - following a rearguard action by Brown and deputy prime minister John Prescott - he was described by Downing Street as the government's new "policy supremo" in a show of strength by Blair.

However some suggest the outcome of the reshuffle is a "score-draw" between the prime minister and chancellor.

Milburn will take charge of Labour's third term manifesto and will chair the party's election planning team.

In previous elections this role has been fulfilled by Brown.

Downing Street sources have also revealed that Milburn will supervise the Number 10 policy directorate and strategy unit and take a government seat on Labour's ruling executive.

The move is a snub to Brown and his protege, Cabinet Office minister Douglas Alexander, who loses his title and election planning role to Milburn.

Arch-Blairite

The arch-Blairite wants to pursue a radical modernising agenda, in contrast to the chancellor's more cautious consolidating approach.

But questions will be asked as to why Milburn has gone back on his commitment to a better work-life balance.

And ahead of Labour's annual conference this month the peace between the Blair and Brown camps has been shattered by the week's events.

A friend of the chancellor told the Times on Thursday that Blair appeared to be acting in a "deliberately confrontational" way.

"There could be carnage ahead," he said.

"There will be rows over everything. Milburn will forever be trying to portray Gordon as the safety first merchant."

The  prime minister's spokesman said that he "did not recognise" a claim that Brown had persuaded Blair to stay on when he was considering resigning earlier in the year.