David Cameron has signalled he is ready to lead Britain out of the European Union if other member states set their faces against tough new proposals to cut immigration.
In a much-anticipated speech setting out plans to bar EU migrants from claiming welfare for the first four years after arriving in the UK and deport those who do not find jobs within six months, Mr Cameron warned that he will "rule nothing out" if other countries turn a deaf ear to British concerns.
But the Prime Minister disappointed eurosceptic Tories by stopping short of proposing a cap on European migration, which had been floated in the run-up to the speech.
The European Commission said Mr Cameron's proposals should be considered "calmly and carefully", while pointing out that EU law already allows national governments to tackle abuse of benefits.
But Labour leader Ed Miliband said Mr Cameron had "no credibility" on immigration and would not be believed by voters after failing to meet his "no ifs, no buts" pledge to cut net migration below 100,000 by 2015.
And Nigel Farage, whose campaigning on immigration has helped Ukip eat into Conservative support, said Mr Cameron had "zero control" over numbers of arrivals from the EU and his proposals were not enough to "turn the tide" of Tory fortunes.
The Prime Minister insisted that he still hopes to be able to recommend an In vote in the referendum on EU membership he has promised for 2017, and said he was "confident" of success in the renegotiation he plans if Conservatives win next year's general election.
But he left no doubt that he has not ruled out recommending British exit if other EU nations refuse to compromise on the principle of free movement and accept reforms that he said were "radical" but "reasonable and fair".
Welfare changes to cut migration from within the EU "significantly" will be an "absolute requirement" in the renegotiation, he said.
"If I succeed, I will, as I have said, campaign to keep this country in a reformed EU," said Mr Cameron.
"If our concerns fall on deaf ears and we cannot put our relationship with the EU on a better footing, then of course I rule nothing out."
Under Mr Cameron's plans, EU jobseekers will not be allowed to claim the new Universal Credit when they arrive in the UK and will be required to leave if they do not find work within six months.
Migrants will be able to claim tax credits and child benefit and apply for social housing only after four years in the country, and will receive no child benefit or child tax credit for offspring living abroad
Speaking in Staffordshire a day after official statistics showed net annual migration rising to 260,000, Mr Cameron conceded that his policies had "not been enough" to meet the Conservative target of cutting overall numbers to the tens of thousands.
But he insisted that his reforms had made "a real difference" and promised to "go further" if he wins next year's election, by revoking the licences of colleges whose students overstay visas, extending "deport first, appeal later" rules and requiring landlords to check tenants' immigration status.
In a clear swipe at Ukip, he warned voters to "distrust those who sell the snake oil of simple solutions" and denounced calls to "pull up the drawbridge" on immigrants as "deeply unpatriotic".
Britain was great "because of immigration, not in spite of it", Mr Cameron said, insisting he was proud of the UK's openness and its "successful multi-racial democracy".
But he also warned: "We have to maintain faith in Government's ability to control the rate at which people come to this country.
"And yet in recent years, it has become clear that successive governments have lacked control. People want grip. I get that. And I completely agree."
The UK does not want to "destroy" the principle of free movement of EU workers, but the right must not be "unqualified" or "absolute", said Mr Cameron.
Britain's economic recovery made it a "magnetic destination" for migrants from the ailing eurozone, but it was also attractive because - unlike many European states - it does not demand workers make contributions through taxes and national insurance before claiming benefits.
Mr Cameron - who spoke to European Commission president Jean-Claude Juncker, German chancellor Angela Merkel and Polish PM Ewa Kopacz ahead of the speech - said his aim was to introduce pan-EU reforms, which would apply on a reciprocal basis to UK citizens. Failing agreement on that, he was ready to see them implemented in a UK-only settlement.
He acknowledged his proposals would require treaty change, but insisted it was "defeatism" to suggest that agreement cannot be found.
In a message to other EU leaders, whom he will meet in Brussels on December 18, he said: " It's time we talked about this properly. And a conversation cannot begin with the word 'No' ... We have real concerns. Our concerns are not outlandish or unreasonable. We deserve to be heard, and we must be heard."
Mr Juncker's chief spokesman Margaritis Schinas said: "These are UK ideas and they are part of the debate. They will have to be examined without drama and should be discussed calmly and carefully.
"It is up to national lawmakers to fight against abuses of the system and EU law allows for this."
Deputy Prime Minister Nick Clegg said that, while some of Mr Cameron's proposals were "sensible and workable", he doubted whether the other 27 EU states would sign up to "every dot and comma of (his) blueprint".
"I think the danger for the Conservatives is that they repeat mistakes of the past, where they've over-promised and under-delivered on immigration, as they did on the net immigration target, which they've missed, and that does a great deal of damage to public confidence in the immigration system," said the Liberal Democrat leader.
Mr Farage accused the PM of "a cynical attempt to kick the issue into the long grass until after the election".
"One thing is true," said the Ukip leader. "He has absolutely zero control over the situation. He cannot control immigration from the EU and has revealingly dropped his suggestions of a cap or an emergency brake on numbers coming in."
Shadow home secretary Yvette Cooper said: "There have been weeks of posturing, pandering and making more promises he can't keep - all of which he has been forced to abandon today. Instead we need a practical plan, as Labour has set out, to make sure that immigration is controlled and managed so the system is fair."
Business groups welcomed the PM's support for the principle of free movement, with the Institute of Directors saying the measures proposed today had "effectively answered" public concerns over its impact.
But Tory backbencher Philip Davies, who forced a Commons debate on immigration in the House of Commons as the Prime Minister spoke, said: "W e cannot control immigration whilst we remain a member of the European Union. Why is it so difficult for the Government to say what is merely a statement of the bleeding obvious?"
And fellow eurosceptic Nigel Mills said: "I think the message we needed was that we would put an absolute cap on it because we have too many people coming."