Peter Riddell: Brown binds in Blairites | Incredible end to feud | Who's who in Cabinet | Comment Central: Blair's fury | Pictures: Cabinet reshuffle | In full: the new Cabinet | Brown's economic 'war cabinet'

Gordon Brown staked his premiership on the shock return of Peter Mandelson and the defeat of the economic crisis yesterday, in the most daring reshuffle of modern times.

He gambled by bringing back the twice-resigned Mr Mandelson from Brussels, elevating him to the Lords and making him his Business Secretary, as he promised to reinvent his Government to tackle the slump.

The former sworn enemies, two thirds of the triumvirate that created new Labour with Tony Blair, were suddenly back together after an astonishing reconciliation that began last Easter, developed with almost daily telephone chats, and ended with Mr Brown offering Mr Mandelson a job on Thursday.

According to one of the handful who knew one of the best-kept secrets of any reshuffle, Mr Mandelson “bit his hand off”. The precise job was decided this week and, according to friends, was a “bombshell” to Mr Mandelson, who did not seek it. Mr Brown decided to bring him back to shore up his leadership and make use of the business skills accumulated during a former incarnation as Trade Secretary and as Brussels Trade Commissioner, a job he abruptly leaves.

At one stroke Mr Brown has neutralised the threat from Blairite ministers, who many believed might leave the Cabinet in the autumn to try to force Mr Brown’s departure. With the arch priest of Blairism back at Mr Brown’s side, such gestures would be pointless.

Mr Mandelson has come back because he wants to help Mr Brown to fight a resurgent Tory party that, if current polls were translated into the next election result, could destroy their new Labour project. “All hands on deck,” was the way a clearly delighted new minister explained his recall. The twice-resigned Mr Mandelson joked that it was “third time lucky”.

Although they have had massive differences over the years, Mr Mandelson has made plain that replacing Mr Brown would be “no panacea” for a Labour recovery.

The risk for Mr Brown is that Mr Mandelson is an unpopular figure with Labour MPs and the unions, and he could suffer a backlash from his own natural supporters if things go wrong. But Mr Brown, clearly emboldened by a successful Labour conference and praise for his handling of the global banking crisis, felt strong enough to take the plunge.

Mr Mandelson admitted that he and Mr Brown had had “ups and downs” but said that he was “very proud to have been invited to serve in his Government”.

In another key move Mr Brown gave the arch Blairite John Hutton, whom some have seen as a possible quitter from the Cabinet, the job he wanted: Defence Secretary. To balance those changes he appointed one of his most loyal allies, Nick Brown, as Chief Whip, and another, Ed Miliband, heads a new Department for Energy and Climate Change.

Mr Brown presented the changes as his response to the challenges of financial instability and oil and food price rises. He knows that his only hope of recovery is to show that Labour, and not the Tories, are best placed to help Britain through the bad times.

Twelve Cabinet ministers will serve on a new Cobra-style National Economic Council that will meet twice weekly during the crisis. Paul Myners, former chairman of Marks & Spencer, has been made City minister. Lord Drayson, returning after a sabbatical racing sports cars in America, becomes skills minister.

Asked if he had taken leave of his senses over Mr Mandelson, Mr Brown acknowledged past problems: “Whatever the ups and downs have been in the past, everybody has got to come together and make sure as a nation we come through this successfully.”

Margaret Beckett also returns as Housing Minister. Des Browne, the former Defence Secretary, leaves the Cabinet, along with Ruth Kelly and Baroness Ashton of Upholland, the former Lords leader, who is replacing Mr Mandelson in Brussels.

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