The Iron Lady and her Conservative Party dominated British politics for more than a decade. Blair’s Labour Party humiliated them in 1997, a loss from which the Tories have never recovered. A second landslide followed in 2001. Suddenly, Blair had within his grasp the fulfillment of Harold Wilson’s dream of turning Labour into “the natural party of government.”

Now the schadenfreude’s so thick you can cut it with a knife. Thatcher fell hard from the geopolitical stage. Today, at 77, she is all but forgotten, her own memory loss so severe that sometimes she doesn’t remember that her husband, Denis, who died in June, is gone. And Blair? For all of his successes, he isn’t Teflon Tony anymore. A summer of plunging polls and rising public anger over Iraq has left him politically vulnerable for the first time. One recent poll found a stunning 43 percent of Britons favored his resignation.

Only the most rabid anti-Blairites argue that his government might actually fall. Thanks partly to the Tories’ disarray, he’s all but certain to occupy Downing Street for years to come. Yet just as clearly, he has crossed the Rubicon, closing the finest chapters of his story and entering what may be a lackluster or even sad denouement to an otherwise spectacular career. As he attempts to climb back from the depths–if he can–he will from now on be damaged goods.

The consequences of Blair’s diminishment are serious–for Britain and for the world. Ever since 9/11, those who sought a restraint on President George W. Bush looked to the British prime minister. In the run-up to the war in Afghanistan, he was Bush’s partner in assembling a genuinely broad international coalition. It was Blair who, with U.S. Secretary of State Colin Powell, persuaded Bush to take his case for invading Iraq to the United Nations. The effort failed, but even those who opposed the war saw him, if nothing else, as a reasonable and even moral man, who happened to have the ear of the American president. To a very real degree, Blair’s loss is the world’s loss.

At home, disillusion runs even deeper. For many Britons, especially the younger generation, Blair was that proverbial breath of political fresh air that comes along once in a great while and defines an era. He was the very embodiment of a new Britain–hip, increasingly rich, newly confident. Cool Britannia. He was also young–just 43 when he took office. His wife not only worked; she earned much more than he. There would be children again at 10 Downing Street. The language of class warfare would fade, replaced by talk of “community,” which sounded good even if not everybody could figure out what it meant. That new dawn now looks more like twilight. Even if he rebounds somewhat–and Blair is nothing if not resilient–he has undeniably peaked. “Once the process of attrition has started,” says the political historian Anthony Howard, “it is very hard to reverse.”

To be sure, six years in office, even under the best of circumstances, would take their toll on any parliamentary government. Allies fall by the wayside, enemies multiply. “You’re chugging along, people are constantly firing at you and bits fall off,” says one senior aide. But Blair hastened his fall. He was willing to pay a political price for his shoulder-to-shoulder stance with Bush on the war, yet he clearly did not expect it to be so high. His adventures abroad have strained Britons’ patience. They recall his campaign pledges to reform and improve public services. (“Education, education, education!” he cried in 1997.) They wish he would worry as much about Britons in Basildon as he does about Iraqis in Basra.

Last week all this came back to haunt him. In the north London constituency of Brent East, Labour lost what was supposed to be one of its safest seats. The loss was trebly significant. It was the first time since 1997 that Labour lost a by-election. And not only did Labour lose; it was defeated by the Liberal Democrats, the only major British party to oppose the war. It’s hard not to take this as a harbinger. Ever since Blair marched into Iraq alongside Bush without U.N. support, his troubles have mounted. Over the summer a series of inquiries into his conduct of war-related matters have chipped away at his public standing. The hearings–especially the Hutton Inquiry still ongoing in London–have fueled popular suspicions that the government cynically inflated the case for going to war against Iraq. This, in turn, has undermined trust in the government and reinforced the increasingly widespread perception of Blair and his inner circle as a nest of control freaks who, tone deaf to public concerns, imagine they know what’s best for Britain.

Even his closest ideological friends are worried. Last week a consortium of leftist Labour intellectuals, calling themselves Compass, issued a statement taking Blair and his government to task: “The Government appears to have lost its way.” As tame as it was–urging the government to not just manage capitalism “as an unstoppable force,” but to redirect it in a more egalitarian way–the document spoke volumes. The Compass group is chockablock with Blair acolytes. Indeed, the names of two important contributors to the document were excised because they recently took senior posts in the government, one at Downing Street and the other at the Treasury.

The official government line is: we’re in control of our party, our party is in control of Parliament and we have no political opposition to speak of. Onward and upward. NEWSWEEK interviewed several senior officials and top advisers in the Blair government last week. They are cheered by two things. There is, right now, no realistic alternative to Blair–not within Labour, and certainly not in any other party. Nor is there any feeling inside Downing Street that the government is running out of steam. “I certainly don’t sense that myself,” says one senior aide. “My desk is littered with policy initiatives, policy announcements and all the rest of it. I don’t think we’re running out of ideas.”

Blair’s people also believe they can repair the damage done over the summer before the next election. (To give himself more time, according to some party sources, Blair may call the next election in the autumn of 2005 rather than the spring.) “I hate to be prosaic,” says a senior Downing Street figure, “but the thing about democracy is that you don’t have to be popular all the time. You just have to be popular when there’s an election.” Needless to say, he made this comment before Brent East.

Beneath the bravado, however, there’s an unmistakable current of anxiety, if not latent panic. Blair and his team have been in permanent re-election mode ever since moving to Downing Street, and they know a political meltdown when they see one. In the case of the war in Iraq–and allegations that the government “sexed up” the WMD case against Saddam Hussein–Blair’s director of communications and strategy, Alastair Campbell, spotted trouble early on. Asked during the Hutton Inquiry about his reaction to press coverage of Blair’s pro-war arguments, Campbell referred to his diary for June 1: “It was grim for me and it was grim for TB and there is this huge stuff about trust.”

Since then, Blair’s brain trust has been developing a comeback plan. “We went from an opposition guerrilla operation to government,” says one aide. “Now we have to adjust again.” The first adjustment was the resignation of Campbell himself at the end of the summer–a sacrificial offering to deflate public ire about the perceived “culture of spin” among Blairites. The prime minister is also instituting other changes designed to “democratize” Downing Street and alleviate public concerns that the entire government is run by a tiny cabal of Blair intimates.

In this new world order, the cabinet is meant to have a stronger hand in pol-icy. In the past it has often done little more than rubber-stamp Blair’s initiatives. Meetings were short–often less than a half hour–and not exactly hotbeds of argumentation. The journalist John Kampfner asserts in a new book, “Blair’s Wars,” that since 1997 the cabinet has not engaged in a single full-fledged debate of foreign policy, even though during that time the government dispatched British troops to fight three wars. Not coincidentally, last Thursday’s cabinet meeting lasted two hours.

Afterward, another side of the new-look Blair government was on display. The same prime minister who last summer addressed a joint session of the U.S. Congress spoke at the opening of a school in southeast London. Britons can now count on seeing more of Blair the Caring Crusader on the home front and less of Blair Force One, the British Airways charter that Blair uses for his overseas jaunts. One of his senior aides said the government recognizes the need to counter “the sense of having drifted off overseas somewhere.” From now on, look for initiatives on health care, rail transport and public services–all in lamentable disarray, yet the recipients of scant attention in the recent past. There was a fence-mending summit with German Chancellor Gerhard Schroder and French President Jacques Chirac in Berlin last weekend. But Blair will not to fly to New York for this week’s opening of the U.N. General Assembly, where the United States is expected to introduce yet another resolution on Iraq. Instead, he’ll be at home drafting his speech for next week’s annual Labour Party Conference.

Blair has a long struggle ahead. Just how tough it will be is evident in the riverside town of Gravesend. The place is an electoral bellwether: in every election since 1964, Gravesend voters have sent to Parliament an M.P. of the party that won the general election. In 2001 Helen Zgoda helped re-elect Chris Pond, a Labour M.P. who is now a junior minister in the Department of Work and Pensions. These days, she’s thinking of voting Conservative.

Earlier this year she was diagnosed with a gallstone. The National Health Service told her it would take care of it–next February. She opted for private treatment. One of her two sons is dyslexic and dyspraxic. His school, citing budgetary constraints, says it can’t meet his special needs. As an adult-education teacher, Zgoda teaches IT to Afghan refugees. But the refugees get only one hour a week of English-language training, so they can hardly profit from her efforts. “They are lovely people, but it’s a waste to give them IT classes,” she says. “Meanwhile, [the government] doesn’t have money for my son.”

These are not matters of war and peace. Blair has always seemed more comfortable working on the large palette of world events than dealing with the small print of public policy. Thatcher learned–the hard way–that prime ministers have to strike a balance between the two: she was brought down by supporting a measly but intensely unpopular “community charge” called a poll tax. The signs are that Blair has learned his lesson. The question is whether he’s learned it early enough to break his fall.