Labour has achieved a great deal, said Prime Minister Tony Blair

The prime minister said the government had helped hundreds of thousands of people into work in Scotland and in every part of the UK.

He said "we should be proud" of the fact that there are now more police in Britain than ever before.

Mr Blair began his Inverness speech by praising First Minister Jack McConnell.

He said he was a "great Scottish leader and a great first minister".

The prime minister said on Friday afternoon that the country was a fairer place than it was seven years ago, but he insisted there was no room for complacency.

There were still things to do on issues such as child poverty, education, and pensioners who were forced to scrimp and save.

In seven years we have accomplished a great deal, our economy is better, society is stronger, we have a better influence in the world and we have changed the way the UK is governed Tony Blair prime minister

During the speech he reflected on the fears which were expressed by Labour's opposition in 1997.

Mr Blair told delegates: "As for devolution, they said it would break up the UK. The UK has not broken, what has broken is the appeal of separatism and of nationalism.

"What the Tories have done is turned their Scottish MPs into second class MPs who cannot vote on certain issues, and this comes from a party leader who took the poll tax through parliament with the help of English MPs."

He added: "In seven years we have accomplished a great deal, our economy is better, society is stronger, we have a better influence in the world and we have changed the way the UK is governed.

"Britain - not just the individuals but the nation - is stronger, richer, fairer than it was seven years ago."

But Mr Blair said that putting achievements aside, it was important to focus on the future and an impending general election.

Iraq not mentioned

He said there was no doubt that Labour's biggest threat was from the Conservative Party.

However, he also hinted that threats could come from within Labour ranks.

He warned activists against the "auld alliance" between Tories and "some of our own folk who are happier in opposition".

Mr Blair told his audience: "Whatever the difference is, always realise where the real threat to progress lies - and how today's Tories pray for that alliance."

He accused the Tories of Thatcherite values and said: "That is today's Tory party - and that is why it must never get its hands back on Britain's future."

Mr Blair's speech dwelt on the economy and Labour's record, and contained no reference to Iraq.

Tony Blair chatting in Inverness, looked on by First Minister Jack McConnell

Instead he told activists that to prepare for a third term of government, Labour needed to find new ways of communicating with the public and engaging with them.

He argued that the "central paradox" faced by Labour as a government and a party was that people's optimism about their own future was not reflected in how they viewed the state of the nation.

Mr Blair: "Personal optimism is often combined with collective pessimism. "The progress is there, the fundamentals are strong.

"So why the pessimism?"

Mr Blair went on: "This is not an accident - it is a design. It is a strategy created by the Tories to undermine the confidence of the country, to undermine the confidence of this party.

"But it is not just a battle of political wills but of political values."

On Thursday evening Mr Blair spent about an hour at a local community centre in Inverness talking to about 40 invited locals.

Meanwhile, former first minister Henry McLeish has denied the serialisation of his memoirs in a newspaper this week was timed to embarrass the party.