Sleepless, dog-tired and under immense pressure, David Cameron is being forced to compress a series of life-defining decisions into 48 hours. They will determine not only his political future, but the future of the Conservative party and of Britain. And the key decision is how much ground he must concede to Nick Clegg's Liberal Democrats on electoral reform in order to gain their support.

On the one hand, Cameron can please the traditional wing of the Tory party, which regards electoral reform as a move towards Tory oblivion. On the other, he can take a giant step in the dark – and promise Clegg a referendum. With his superb, statesmanlike speech in Westminster yesterday, Cameron threw open this extraordinary prospect. True, his proposals for a commission to examine electoral reform did not go far enough. But he made it very clear that there is scope for negotiation.

Cameron's generosity of spirit and grandeur of vision on Friday opened up the possibility of a Lib-Tory alliance comparable to the Lib-Lab pact which supporters of Tony Blair dreamed of, and Blair himself betrayed, after 1997. Indeed the prime minister and his supporters are wrong to argue today that the Liberal Democrats and Labour have far more in common than Lib Dems and Conservatives. Ideologically, the Conservatives and the Liberal Democrats share one massive idea. They are both doctrinally suspicious of central government. They favour localism, decentralisation, individual freedom and accountability. The want to destroy the big state and all of its paraphernalia: bureaucracy, secrecy and central control.

Gordon Brown and Peter Mandelson, in sharp contrast, have been the joint architects of the surveillance state and all its sinister apparatus of ID cards and arrest without charge – the emergence of which has been so carefully chronicled by Henry Porter in the Observer over the past few years.

At Porter and Anthony Barnett's Convention for Modern Liberty, Chris Huhne, the Lib Dem home affairs spokesman, proposed a revolutionary notion: a Great Repeal Bill to roll back state intrusion. This has since become Conservative party policy and can provide a basis for common ground between the parties in the coming Queen's Speech.

It must be acknowledged that Cameron has failed to properly explain the fact that Tories and Liberal Democrats have a common agenda on freedom. This is mainly because of the deeply regrettable Conservative party alliance with Rupert Murdoch's Sun newspaper last autumn. Since then, Cameron has been on the retreat over human rights and individual liberty. One wretched example: his failure to speak out seriously against the squalor of British collaboration in torture and the extraordinary rendition of terror suspects. Under pressure from the Sun, he submissively sacked Dominic Grieve, his shadow home secretary, and replaced him with the more ideologically reliable Chris Grayling.

But these are all areas where the Lib Dems can rescue the Tories from the moral blindness forced on them by the Murdoch empire. Between them, the two parties can shape a new progressive alliance that can stand up for individual freedom and decency against the in-built conservatism and narrow statism of Gordon Brown and Ed Balls's Labour party.

It is true that this policy would affront some Tory die-hards, and there were signs yesterday that Liam Fox, the shadow defence secretary, was emerging as their spokesman. But contrary to reports, many so-called rightwingers would be comfortable with a Lib Dem alliance. It is deeply significant that yesterday Douglas Carswell and Daniel Hannan – joint authors of the brilliant Conservative polemic, The Plan, which contained the original proposal for a Great Repeal Bill – welcomed the idea of a Lib Dem pact and political reform. So did David Davis.

I believe that Cameron's mission has long been comparable to that of Benjamin Disraeli, who led the Conservative party out of two decades of electoral oblivion in the middle of the 19th century.

Disraeli achieved this through one act of unbelievable political audacity. In 1867, he trumped the timid proposals of Gladstone's Liberal party by unveiling his much more radical proposals for voter enfranchisement through the Second Reform Act.

Disraeli's manoeuvre horrified the obscurantists, who feared that allowing the vote to the great unwashed would put the Conservatives out of power for ever. They could not have been more wrong. Disraeli went on to built on the achievement of 1867, widened the basis of Conservative support and created the basis for Tory electoral dominance throughout the 20th century.

With brilliant opportunism, Disraeli had seen the future and grabbed it. Compare and contrast Conservative party opposition to Scottish devolution in 1997. The objections to Labour's proposals were intellectually coherent, but dogmatic Conservative opposition to Scottish devolution has wrecked the party north of the border, so much so that it may never recover.

The deadly example of Scottish devolution suggests that the bigger long-term threat to the Conservatives would come from a refusal to offer the Liberal Democrats a referendum on proportional representation. Cameron has a chance to change Britain, to reshape the political landscape and to turn the Conservatives into the progressive party that New Labour never became. We will know over the next few hours whether he has the nerve.