Prime Minister Tony Blair (search) unveiled his Cabinet on Friday, changing leadership in defense and health, while boosting the prominence of his Europe minister as he put his government back in business after a third term victory dampened by a reduced majority in Parliament.

As expected, Blair kept his powerful Treasury chief Gordon Brown (search) by his side as Chancellor of the Exchequer. Brown's strong stewardship of the economy played a key role in securing the government's re-election.

Foreign Secretary Jack Straw (search), a steadfast ally who has repeatedly defended the government's decision to back the U.S.-led invasion of Iraq, also kept his job.

Blair's friend and ally, David Blunkett, who was forced to quit as home secretary last year after he was embroiled in a messy affair with a married American publisher, was brought back as Work and Pensions Secretary — a key role as the government tries to cope with Britain's looming pensions crisis.

The reshuffle followed Blair's Labour Party winning re-election. The triumph was tarnished by the government House of Commons majority being slashed from 161 to 66 by a volatile electorate disillusioned with politicians and angry over the Iraq war.

Blair acknowledged voters had given him a bloody nose.

"I have listened and I have learned," said Blair, who decided to skip a trip to Moscow next week to mark the 60th anniversary of the Allied victory over the Nazis. "And I think I have a very clear idea of what the British people now expect from this government for a third term."

Conservative chief Michael Howard, who led his once-mighty party to a third successive defeat, announced he would step down once party leaders decide on a successor, expected to happen in the next six months.

"I have said that if people don't deliver they go, and for me, delivering meant winning the election. I didn't do that," Howard told supporters. He did not announce a date for his resignation, but said it would be "sooner rather than later."

The Conservative's renewed problems — a fourth leadership battle in eight years — temporarily took the focus off Blair. However, Labour's reduced majority could loosen Blair's grip on power and prompt calls for him to step down before he has served a full five-year term. Brown, is widely regarded as his likely successor.

Labour needed at least 324 seats to form a majority in the 646-seat House of Commons. With 627 constituencies reporting, Labour had 355 seats; the main opposition Conservatives 197; Liberal Democrats 62; and independents and smaller parties 13.

Voter turnout, at about 61 percent, was up 2 percent from 2001's record low.

Blair's weakened authority could make it harder for him to push through planned changes in public services and secure a yes vote in a referendum on the European Union constitution.

In an indication of how seriously the government takes that challenge, the new Europe minister, Douglas Alexander, will also be allowed to sit in on the weekly Cabinet meetings.

Alexander is a key ally of Brown, and his promotion is seen as a sign Brown wields significant influence over Blair after garnering so much support through the election campaign.

The election result may also strain the "special relationship" with the United States.

"One of the conclusions of this is that he certainly does not have a mandate to launch another war along with (U.S. President) George Bush," said Robin Cook, who resigned from Blair's Cabinet in opposition to the war.

Bush phoned Blair Friday from Air Force One to offer congratulations, National Security Council spokeswoman Corry Schiermeyer said.

In other changes, John Reid, Blair's gritty, tough-talking health minister was moved to defense, replacing Geoff Hoon, who becomes the government's leader in the House of Commons.

Former House of Commons leader Peter Hain replaced Paul Murphy as Northern Ireland secretary. He will oversee the province's government in Belfast.

The decision to transfer Murphy, a Welsh Catholic with experience in handling Northern Ireland negotiations, suggests that Britain isn't expecting any major new political initiative in the province soon. Hain has no previous experience in Northern Ireland matters.