Tackling class inequality, fostering community cohesion and halting illegal immigration lie at the heart a "modern agenda" to fight UK racism, David Blunkett said last night.

In what was billed as a keynote speech, the home secretary outlined a vision of race equality which culminated in a call to "reclaim the flag" from the far-right.

"Britain has changed significantly in the last 30 years. We have become a diverse and tolerant society, enriched by immigration and with much better race relations," he told the Social Market Foundation.

Celebrating "a diverse and tolerant society" Blunkett said that trust must be rebuilt if extremists are not to exploit "fear, mistrust, and concerns which emerge at a time of change".

"There is hope and optimism for the future... the 'reclaiming of the flag' for the Golden Jubilee and the World Cup must be sustained if we are to see off the BNP and the National Front in their efforts to foster fear, mistrust, and exploit concerns which emerge at a time of change," he told his audience.

Tasked with tackling deep division and "parallel lives" in Britain's inner cities, Blunkett also raised the class issue. "Class inequality is the foundation of the most visible racial prejudice and inequality," he said.

Noting that 70 per cent of Britain's ethnic minority population live in the 88 most deprived local authority areas, the home secretary identified a clear link between tackling poverty and citizenship.

"Unless we tackle the poverty and disadvantage that is disproportionately experienced by ethnic minority communities, we will not achieve race equality," he said.

The home secretary said the word "class" has become "politically incorrect".

Making a clear link between public spending and social cohesion, Blunkett added fuel to Whitehall budget fights between home affairs, education and health ahead July's comprehensive spending review.

"If we want to achieve race equality, we have to tackle mainstream issues of social class: jobs, housing, education, income and assets," he said.

Blunkett also gives his response to the director of public prosecutions, Sir David Calvert-Smith, who said that Britain is a racist society.

"Prejudice and racism must also be faced and tackled head on," he added.

"It takes different and complex forms. Even where ethnic minorities are as well qualified as the white community, they don't succeed to the level which they and we expect in the labour market and wider society."

"So specific action to tackle discrimination is still necessary, recognising the covert racism and glass ceilings which are often the modern face of racism and the challenges of delivering services to a diverse society. "

Blunkett claimed that rebuilding "social cohesion" and trust were key to tackling the roots of racism.

"Social cohesion is essential to reducing the fear of change and community tensions," he said.

"It is not a substitute for reducing inequality or the tackling of prejudice.

"At the same time, equality does not guarantee that communities are cohesive, nor that different communities interact in the social, civil and political life of the country," he told the Westminster think tank.

"We must not think of ourselves as separate communities, or allow segregation to take place in reality. Cohesion is a vital objective."

He warned opponents of his asylum and nationality reforms against approaching the issue "from a fixed and traditional stance".

"This means that there can be no barriers to discussion and debate, which are thrown up purely because of cultural or racial background, ensuring a real dialogue and two-way engagement on issues of coping with rapid economic, social and cultural change," he said.

"Tackling racism is not about more legislation but about changing perspectives, influencing attitudes and attacking racism where ever it raises its ugly head.

"Equally, reducing fear misunderstanding and prejudice is aided by robust policy in relation to clandestine asylum or the misuse of our systems whilst opening up the debate and arguing for the importance and valuable gains from open transparent and well-organised economic migration."