Cameron and Clegg hail a new political era on their first day in power

David Cameron and Nick Clegg promised a "new politics" that would transform the political landscape yesterday as they launched their coalition government.

The new Prime Minister and Deputy Prime Minister issued their policy prospectus for a full five-year parliament as they promised to bury the past differences between the Conservatives and Liberal Democrats in a move that could create a permanent realignment in British politics.

With the hopes of Blairites for a Lib-Lab "progressive alliance" in ruins, some Tories said Mr Cameron saw his partnership with the Liberal Democrats as the next stage of his crusade to modernise the Conservative Party.

His close allies believe the Tories' failure to win an overall majority in last week's general election shows they have not yet "detoxified" the party's brand – and hope that the unexpected alliance with the centrist third party will enable him to complete his project.

But such views will anger Tory traditionalists, who are blaming the Cameron inner circle for a campaign which they claim lacked a cutting edge and failed to inspire the voters.

Although some Tory MPs have misgivings about the coalition, Cameron allies believe the agreement to legislate for five-year, fixed-term parliaments will ensure the coalition lasts. Another safeguard is to raise the threshold for a dissolution of Parliament to 55 per cent of MPs, making it hard for either coalition partner to walk away and provoke a general election. Privately, senior Tories believe they could enjoy an advantage at the next election because it will be difficult for the Liberal Democrats to criticise the coalition's record.

But the Liberal Democrats are jubilant about their surprise return to the Cabinet after almost 70 years in the wilderness. They trumpeted Mr Clegg's role as Deputy Prime Minister in charge of a programme of wide-ranging political reform including changes to the voting system for the Commons and an elected House of Lords. Some Liberal Democrats hailed as a victory the coalition's initial programme published yesterday and praised the team that negotiated it with the Tories. Lord Oakeshott of Seagrove Bay, a Liberal Democrat peer, said: "You see why Chris Huhne and David Laws were gold dust in the City. Thank God I've never had to negotiate against them. They've taken the Tories to the cleaners."

Britain's first coalition government since the Second World War got off to an impressive start when Mr Cameron and Mr Clegg held a press conference in the Downing Street rose garden. The new Prime Minister said: "It can be a historic and seismic shift in our political landscape. It can demonstrate, in government, a new progressive partnership." He added: "It will be an administration united behind one key purpose: to give our country the strong, stable and decisive leadership we need. We have a shared agenda and a shared resolve, to tackle the challenges that Britain faces."

Mr Clegg acknowledged that there would be "bumps and scrapes" as they were different parties with many different ideas, but insisted: "This is a Government that will last because despite those differences, we are united by a common purpose for the job we want to do in the next five years." He added: "Until today, we have been rivals, now we are colleagues. That says a lot about the scale of the new politics now beginning to unfold."

Mr Cameron handed five cabinet posts to Liberal Democrats – including David Laws as Chief Treasury Secretary, Vince Cable as Business Secretary, Chris Huhne as Energy and Climate Change Secretary and Danny Alexander as Scottish Secretary.

Theresa May becomes Home Secretary, only the second woman to hold the post, after Labour's Jacqui Smith – a surprise move aimed partly at heading off criticism that the Government was composed of "men in suits". But women took only four of the Cabinet's 23 posts. The others are Caroline Spelman, the Environment Secretary; Baroness Warsi, the new Tory chairman and Cheryl Gillan, Welsh Secretary.

There was a return to the front line for Iain Duncan Smith, the Tories' former leader, who becomes Work and Pensions Secretary in a move designed to reassure the party's right-wingers and a clear sign that the Government will pursue radical welfare reform. Kenneth Clarke, the former Chancellor, became Justice Secretary.

Despite the smooth start, the practical problems that are bound to arise in the double act were highlighted soon after the full Cabinet line-up was announced. Liberal Democrat sources claimed only Mr Clegg could remove the ministers from his party who serve in the Government. But Tory aides contradicted their new partners, insisting Mr Cameron enjoyed a veto over every member of his administration.

The new National Security Council met for the first time last night to discuss the conflict in Afghanistan and counter-terrorism measures in Britain.

United we stand: What they said about working together

"It will be an administration united behind three key principles: freedom, fairness and responsibility. And it will be an administration united behind one key purpose and that is to give our country the strong and stable and determined leadership that we need for the long-term."

David Cameron

"In other political cultures it would not be even a faintly radical thought that parties might co-operate with each other in government for the good of the country, but campaign against each other at election time. That is precisely the kind of thing that you will see now. I hope people will find it relatively unsurprising relatively quickly. As David has quite rightly said, we can only help bring that about by being successful in delivering the good government that we've negotiated in this coalition agreement... It's a new kind of government, a radical, reforming government... a source of reassurance at a time of great uncertainty."

Nick Clegg

"He has the Deputy Prime Minister's office in the Cabinet Office. We haven't yet explored all each other's offices, but [they are] pretty close together. This is not going to be a partnership where we have to book meetings."

David Cameron

"There is a corridor that links No 10 to where I am but I have no idea where I am. It's a rabbit warren."

Nick Clegg

"If [making the partnership] work means swallowing some humble pie, and it means eating some of your words, I can't think of a more excellent diet."

David Cameron

President's seal of approval

David Cameron seems to have made a good impression on his new deputy, and he also appears to have a fan in Barack Obama, too.

When the US President was asked in Washington last night – during a joint press conference with his Afghan counterpart Hamid Karzai – whether he had received any assurances from Mr Cameron about British commitment to the war in Afghanistan, Mr Obama replied: "I have found Mr Cameron to be a smart, dedicated, effective leader and somebody who we are going to be able to work with very effectively. He reaffirmed, without me bringing it up, his commitment to our strategy in Afghanistan. We also both reaffirmed the special relationship between the United States and Great Britain that outlasts any individual party, any individual leader. It is built up over centuries and is not going to go away."