David Blunkett has set out a blueprint for emergency new laws to tackle terrorism on the "home front".

"At this time of challenge to our country and our values it is vital to ensure that we are fighting the war against terrorism on every front," he told Labour conference. "I do not believe in passing laws just to give the impression we are doing something. The bills we will put before parliament will focus on practical measures which will deter and disrupt the work of terrorists in Britain."

In a key concession to UK Muslims following the heated aftermath of the September 11 attacks on New York and Washington, "incitement to religious hatred" is to become a new crime.

"I am determined to ensure that religion is not used to divide and fragment communities in our country at this difficult time," he said. "That is why at the request of the Muslim community I will toughen up our incitement laws to ensure that attention seekers and extremists cannot abuse our right of freedom of speech to stir up tensions in our cities and towns."

The home secretary announced the new measure, widening the category of racial hatred to include religion, as part of an extensive package of emergency legislation to be enacted in up to three anti-terrorist bills.

Other measures include a new offence for financial institutions which fail to report transactions "that they know or suspect to be linked to terrorist activity" and full access will be given to law enforcement agencies monitoring freight and passenger movements.

Blunkett moved to reassure human rights critics of his proposals."The measures we take will be measured. We are not undermining people's rights - we are only threatening those who seek to take our rights away form us by terror. Our first and most fundamental right is to a life free of fear," he said.

Successfully heading off a Labour row over asylum vouchers, Blunkett also announced plans for a new work permit scheme as part of government review of the currently "unworkable" immigration and asylum system.

He told conference delegates that the government would seek to improve the lives of "hundreds of thousands of people working clandestinely in the UK in appalling conditions" pulling off a typical Blunkett "tough n' tender" combination of social rights combined with a tough new crack down on illegal immigration.

"We want to ensure that our economy can benefit from opening opportunities to both skilled and unskilled workers on a sensible managed basis," he said. "We want to encourage those workers who apply to work in Britain through the proper channels so our country is as strong as possible in the global economy."

The reforms are expected to benefit 60,000 workers with a points-based work system for about 3000 professionals and a system for other workers to be set up for around 36,000 workers in agriculture, catering and construction. An additional 5000 to 10,000 fixed term work permits will be available for seasonal workers.

Speaking on the conference fringe this Monday, the home secretary said that he intends "to make a major statement on asylum to the House of Commons at the end of October".

"The system doesn't work it is a mess," he said. "The system, inherited from predecessors, that is unworkable has been made to work. But that is not the same as sorting it out."Key to Blunkett's conference speech was the defusing of a damaging row over the controversial voucher system for asylum seekers, opposed last year by union boss Bill Morris as "demeaning and an indictment to a society which prides itself on the principle of social justice".

A TGWU motion calling for the voucher scheme to be scrapped immediately was re-admitted after a last minute behind the scenes compromise was brokered by Morris and Blunkett.

"During my conversation with the home secretary, he said two words to me: 'Trust me'. David, we do. But please remember asylum seekers cannot sit in the waiting room of the promise never-never land for ever," he told conference delegates. "And we give notice now, we will come back again, and back again, until we get justice for asylum seekers and get rid of the demeaning voucher system."

Blunkett ordered Home Office civil servants to find an alternative to vouchers two months ago and an official consultation document will be published after conference detailing proposed changes.

The home secretary is even said to be considering the TGWU's demand that asylum seekers be allowed to cash the vouchers - worth only 70 per cent of social security payments - rather than having to queue separately, "apartheid style", from other shoppers.

Blunkett had earlier stated that he had no immediate plans to introduce ID card legislation in the aftermath of September 11's attacks on New York and Washington.