PRIME Minister Tony Blair told political friends and foes alike yesterday that his Government would not flinch from taking tough decisions whether they were at home or abroad.

Delivering a keynote address in the Old Parliament building in Cape Town during the final leg of a three-day visit to South Africa, he said: ''It is on the third way that I wish to focus today, for a new politics is arising from the ashes of the struggles of the twentieth century between traditional views of capitalism and of socialism.

''The third way seeks to combine economic dynamism with social justice, indeed it does more - it avows that the one depends on the other.''

The Prime Minister stressed that the driving force behind his third way was the globalisation of economics and politics.

He added: ''The implications of this are profoundly radical and controversial. The objectives of the centre and centre left remain. The means of achieving them have to be fundamentally reconsidered.''

Mr Blair praised South Africa's transition from an apartheid regime to democracy, saying: ''Any project of transformation calls for energy and leadership. It calls on people like us to give the leadership that gives confidence to our peoples.''

He went on: ''I want to build a nation where the potential of all is used - which is why education must be our number one priority, to build a nation that is led not drifting, leadership that takes the tough decisions and does not flinch when the going gets tough.

''This is a year of challenge for the nation and for families. I know many face the future with apprehension but I know that if we work together to meet these challenges we defeat them.''

Earlier Mr Blair and his wife Cherie saw at first-hand the effects of the Aids epidemic sweeping Africa.

The couple met a six-year-old girl they sponsor at the Nazareth House Children's Home in Cape Town, and played with her and other youngsters who have been orphaned or abandoned because of the virus.

The youngster sponsored by the Blairs is HIV positive and is not expected to live long - even the most popular drugs for stabilising the virus are beyond the home's budget.

Mr Blair seemed visibly moved as he clutched the little girl's hand and wandered with her through a playground in the shadow of the city's landmark Table Mountain.

The Prime Minister also confirmed during his visit that Britain is to give an extra #100m over the next three years to help the global fight against Aids.

Britain has given a grant of #20,000 to the home, run by Roman Catholic nuns, to help it build an extension to care for more than the 40 children it already looks after.

Mr and Mrs Blair contribute #15-a-month to pay for the little girl's care. The home asked reporters not to name her, to protect her privacy and that of her surviving family.

The Prime Minister left South Africa last night to fly to Kuwait, where he will pay tribute to the RAF Tornado Squadron based there who currently patrol the no-fly zone over Iraq.