Working from an office in Jerusalem, and possibly another in the West Bank, Mr Blair will become the special representative for the Middle East quartet of UN, EU, US and Russia. The announcement comes on the eve of his departure from Downing Street tomorrow and is privately welcomed by Gordon Brown.

The arrangement, which has been under preparation for weeks, is due to be agreed at a meeting of the quartet today.

Friends of Mr Blair suggest he would make it a central purpose of his mission to work to restore Palestinian unity after the armed takeover of the Gaza Strip by the Islamist movement Hamas.

At times he has had to bend with an American willingness to bolster Mahmoud Abbas, the Fatah leader, while ignoring the plight of 1.4m Palestinians in Gaza.

The idea of Mr Blair doing this job is understood to have originated with the prime minister himself in conversation with George Bush, who then suggested it to the UN. The UN secretary general, Ban Ki-moon, is said to be a keen supporter and Washington was reported last night to have mounted "an enormous push" to ensure Mr Blair got the post.

Diplomats said there was some disquiet over the way US talks with Mr Blair were well advanced before any details were shared with the other quartet partners.

Mr Blair has contantly pressed Mr Bush to take a more active role in securing a two-state solution for Israel and Palestine. Though his standing in the so-called Arab street may be low because of his role in the invasion of Iraq, he is held in high standing among Arab political elites, and he has frequently spoken of his passion to play a part in helping to secure peace in the Middle East.

It was being stressed last night that Mr Blair's role - in the short term at least - would not be to act as a mediator between the Palestinians and the Israelis, or to become a negotiator for the road map to peace. He might, however, be responsible for trying to persuade the Palestinians to accept the conditions for ending the international boycott of Hamas. The now defunct Hamas government has not received any international aid since its election in March 2006, although aid has been sent directly to the poorest Palestinians through a temporary international mechanism.

The quartet says aid can only be conditional on the Palestinians accepting the right of Israel to exist and giving a commitment to exclusively peaceful means and to abide by all previous agreements.

Critics have claimed the preconditions have impoverished the Palestinians, boosted unemployment and led to the radicalisation of Hamas, culminating in Hamas controlling Gaza, and Fatah the West Bank.

Diplomats familiar with the proposed mandate for Mr Blair said it did not differ in substance from that of his predecessor, Jim Wolfensohn, who left the job in April 2006. Mr Wolfensohn worked on issues such as galvanising international economic assistance to the Palestinians, economic development, governance, justice and human rights. Mr Blair's appointment was discussed by Mr Ban and Condoleezza Rice, the US secretary of state, at a conference in Paris yesterday before the quartet envoys met to conclude the deal in Jerusalem this morning.

The four envoys are David Welch for the US, Michael Williams for the UN, Marc Otte for the EU and Sergei Yakovlev for Russia. It was Mr Welch, assistant secretary of state for the Middle East, who discussed the idea with the prime minister in London last week.

Russia had initially been opposed to the plan but Sergei Lavrov, the country's foreign minister, referred the proposal back to Vladimir Putin, the president, diplomats said. Although Mr Putin and Mr Blair held a relatively heated bilateral meeting at the G8 last month, Mr Putin is not going to deploy his veto.

Mr Blair's reputation as a negotiator in Northern Ireland suggests that he has the patience and determination to bring differing sides together. He has repeatedly said the Middle East peace talks need to be micro-managed in the way that he handled the Northern Ireland peace process.

Diplomats say the prime minister is in a better position than Mr Wolfensohn, a former World Bank president who was backed by Kofi Annan at the UN but eventually opposed by the US. "That may not be the case with Blair because he has such a hold in Washington," said one.

An Arab official was more sceptical. "I don't know what Blair is going to be able to achieve," he said. "And anyway, what does Palestinian governance mean at this point in time when there is a geographical and political separation between the West Bank and Gaza?"

Mr Blair's talks in Rome with the Pope were largely centred on his strategy to build a bridge between faiths. One of his great aims is to secure a reconciliation between Islam and Christianity.

His appointment would come at a low ebb for the peace process, although there were slightly more optimistic noises from a summit in Egypt yesterday. The Israeli prime minister, Ehud Olmert, said last night that he would release 250 Palestinian prisoners in an effort to restart the long-stalled peace process, after meeting Mr Abbas, King Abdullah of Jordan and the Egyptian president, Hosni Mubarak.