The fortunes of Europe's Security and Defence Policy have resembled a roller-coaster ride for much of the past year. When Europe's most powerful countries failed to achieve consensus on policy towards Iraq, they fell out badly and subsequently pursued divergent agendas. Now, as a result of a new deal between France, Germany and the United Kingdom, they may have prepared the groundwork for more effective EU defence cooperation. But some in Washington still have to be persuaded that this is in both US interests and those of NATO.

The agreement on the future of European defence, which was endorsed by the European Council, is good news for those who believe that the European Union should focus more on military capabilities than institutions. Now that the European Union has agreed to set up a civil/military planning cell - an item which will make little difference in the real world, despite the highly charged negotiations surrounding it - it can move ahead with what matters. That is not only boosting Europe's military capabilities, but also preparing to take over NATO's peacekeeping mission in Bosnia and Herzegovina.

The defence agreement, which was reached in spite of the deadlock on a European constitution, is one fruit of the increasingly close cooperation on foreign and defence policy between Berlin, London and Paris. Yet it is only six months since France and Germany, together with Belgium and Luxembourg, hatched plans for a "core Europe" defence organisation that excluded the United Kingdom. That scheme deepened the divisions caused by the Iraq War and convinced many Americans that France and Germany were determined to undermine NATO.

Emotions have subsided since the spring. French President Jacques Chirac and German Chancellor Gerhard Schröder have abandoned their plans for a defence core. They now believe that European foreign and defence policies cannot be built without the United Kingdom. For the sake of an agreement with the British they have diluted their original plan for a military headquarters to run EU operations. Instead, a small planning unit with civil/military components is to join the existing EU military staff.

UK Prime Minister Tony Blair, too, has had to compromise, by accepting the principle that the European Union may need to do its own operational planning, and by agreeing that this unit may one day evolve into a real headquarters - if everybody agrees that it should do so. In return, France and Germany have agreed to change two contentious parts of the EU draft constitution: the article committing members to defend each other if attacked is to be greatly watered down, and that allowing a group of countries to move ahead with a defence avant garde is to be focused on increasing military capabilities.

More importantly, Prime Minister Blair has reasserted British leadership in European defence, one of the few areas where the United Kingdom is well qualified to set the European Union's agenda. Following the Iraq War, Prime Minister Blair had a credibility problem in some parts of Europe, being seen as US President George Bush's lackey. His new commitment to EU defence should help to dispel that image and to restore British influence in the European Union.

Since Prime Minister Blair came up with the idea of an EU role in defence, five years ago, he has often had to expend energy on persuading first President Bill Clinton, and then President Bush, that European defence would not damage NATO. This time, Prime Minister Blair will find the task more difficult, for Washington has become increasingly sceptical about EU defence. That is in part a consequence of a hardening of attitudes towards Paris, especially in the Pentagon, where European defence is sometimes wrongly viewed as a French invention.

The summit on 29 April of the leaders of Belgium, France, Germany and Luxembourg did a great deal to sour opinion in Washington. The four leaders agreed to cooperate more closely on defence matters in seven ways. Six of these were not particularly controversial. But the seventh was the Belgian idea for the establishment of an EU operational planning staff in the Brussels suburb of Tervuren.

The argument for this initiative is that if, as the 15 current EU members have agreed, the European Union should be able to conduct autonomous operations, it will need its own operational planners. The argument against, put by those governments excluded from the 29 April summit, is that the European Union can rely on NATO planners at Supreme Headquarters Allied Powers Europe (SHAPE) for a so-called "Berlin-plus" operation, like that in the former Yugoslav Republic of Macedonia,* when it decides to work with NATO; or the European Union can use a national headquarters, duly modified to reflect the nationalities of those taking part in the mission, as it did for the mission to Bunia in the Congo, when a French headquarters directed the operation.

The counter-argument is that only the larger EU countries have suitable national headquarters, and that many smaller members would like to participate in an EU planning group, rather than second staff to a headquarters run by a big country. The more sceptical response is that if the European Union had a very small headquarters of just a few dozen people, it would lack the capacity to manage a military mission, while if the European Union had a large operation it would duplicate and in the long run rival SHAPE.

These technical arguments, however, were not the issue. For the Belgian proposal, strongly backed by President Chirac and Chancellor Schröder - against the advice of their foreign and defence ministries - was of huge political importance. The four governments involved were the same four that had blocked NATO aid for Turkey early in the year. That the ring-leaders of the European Union's anti-war camp should try to set up a core European defence organisation, with its own operational planning staff, had an obvious message in American, British, Eastern European, Italian and Spanish eyes. This appeared to be an initiative designed to undermine NATO - and exclude the British from the principal area where they are able to play a leading role in European integration. Moreover, this initiative was not just about defence: the French and German governments had for years toyed with the idea of establishing some sort of core Europe, which would provide leadership to an enlarged European Union. They hinted that such a core Europe should exclude those who were not committed to putting Europe first, a category which included both the British and the Eastern Europeans.

The gang of four denied that their initiative was intended to bring about these consequences. But they did see it as historically significant, in the way that earlier initiatives on the single currency had been. Indeed, they viewed defence as the next big area for European integration and were not prepared to let hostility in London or Washington deflect their purpose.

The concept of an EU staff of operational planners is, in itself, not particularly significant. It is probably desirable, if in the long term the European Union is to engage in medium-sized autonomous operations. But given the context in which the Tervuren initiative was launched - with Europe split into two hostile camps - the timing was extraordinarily poor.

In Washington, senior figures viewed the Tervuren proposal as an attempt to create an alternative to NATO, and thus to weaken the Alliance. Moreover, it was followed by further developments they found objectionable. The manner in which the European Union embarked on the mission to Bunia, for example, irritated US decision-makers. This is because EU ministers did not discuss the operation with NATO, to work out which organisation was better suited to send the troops, but unilaterally decided to dispatch peacekeepers. And the constitutional convention has been a particular bone of contention. The draft EU treaty contains a mutual assistance clause that seems to imply that the European Union could become a collective-defence organisation to rival NATO. Moreover, it has provisions for "structured cooperation", which would allow a sub-group of members to move ahead with defence integration. In Washington, that looked like a way of formalising the results of the 29 April summit. In short, during the course of this year opinion in Washington has shifted against the European Security and Defence Policy (ESDP). Europeans should worry about this; it will be hard to make ESDP work if the Americans are actively opposed to it.

Meeting in Berlin in September, Prime Minister Blair, President Chirac and Chancellor Schröder sketched out the framework for a compromise on European defence, and in late November the details were finally agreed. The deal involves three elements.

First, the European Union is to set up a small cell of operational planners at SHAPE, NATO's planning headquarters near Mons. This cell is to work on ensuring a smooth relationship between the European Union and NATO on "Berlin-plus" missions, when the European Union borrows NATO assets. There is also to be a new planning unit with civil/military components for the European Union's military staff, which currently consists mainly of "strategic planners" (whose job is to advise EU foreign ministers on the operational plans that may come out of SHAPE or a national military headquarters). The new unit is to help with the planning of EU civilian operations as well as civil/military missions. It has been agreed that, when the European Union conducts an autonomous EU mission, a national headquarters will normally be in charge. However, if there is unanimous consent, the European Union may ask its military staff to play a role in conducting an autonomous mission, in particular where a joint civil/military response is required and no national headquarters has been identified. It would need to be reinforced before it was able to run a mission on its own.

Second, the inter-governmental conference should amend the treaty articles on "structured cooperation", so that the rationale of the avant-garde group becomes the enhancement of military capabilities. A separate protocol is to describe what the structured cooperation will do. This is, in effect, to set up a capability-enhancement club. The criteria required for entering the club will not be too stringent - for example countries concerned must have forces ready for action in 5 to 30 days, which can be sustained on a mission for 30 days or longer - which means that it will not be exclusive. While neutrals or others uninterested in boosting their capabilities may wish to stay out, most member states are likely to join. The way the protocol is drafted, structured cooperation cannot be about military operations, nor about a small group of countries establishing new institutions or headquarters. London is therefore happy with these arrangements, which is why it has agreed that the European Council should be able formally to trigger the structured cooperation by qualified majority voting.

Third, the treaty articles on mutual military assistance are to be amended. The mutual defence clause in the detailed part three of the draft constitution has been deleted altogether. The more general article in part one of the draft constitution has been watered down, with references to members aiding each other "in accordance with Article 51 of the UN Charter", and to NATO remaining "the foundation of members' collective defence and the forum for its implementation". In this way, the European Union will not be making claims to be a collective-defence organisation of the sort that could rival NATO.

Prime Minister Blair's role in the revival of European defence cooperation has been crucial. For the British government has not been firmly behind his efforts to promote EU defence. Much of the Ministry of Defence and even parts of the Foreign Office were not enthusiastic about compromising with France and Germany on planning staffs, concerned, above all, by Washington's possible reaction. But 10 Downing Street has led on this dossier, forcing the other Whitehall departments to follow.

Prime Minister Blair will now have to play an equally important role in reassuring other interested parties that big three cooperation on defence is not harmful to their interests. There is probably no one else who is capable of reassuring Washington that EU defence will not damage NATO or US interests. He has a powerful argument to use with the Americans. If the United Kingdom blocked any EU role in operational planning, France and Germany would probably go ahead - with a few like-minded countries - to set up some sort of multinational military headquarters. And that could develop in a way that harmed NATO. But if the British are part of the new EU planning arrangements, they can steer them in a NATO-friendly direction.

Other European countries will also need reassurance: the smaller ones tend to be concerned when the big three concoct a deal and the neutral ones worry about the implications of a clause on mutual military assistance. The Central and Eastern Europeans, in particular, have misgivings about an EU role in defence and are concerned by any development that might be seen to undermine NATO. But when Prime Minister Blair - whose Atlanticist credentials cannot be doubted - tells them that they need not worry, they are inclined to believe him.

The concept of EU defence is five years old this month. Conceived by Prime Minister Blair and President Chirac at their St Malo Summit in December 1998, it came close to a premature end this year as a result of the very different positions towards the Iraq War taken by President Chirac and Chancellor Schröder on the one hand and Prime Minister Blair on the other. Prime Minister Blair's pursuit of a policy of compromise with France and Germany this autumn has helped breathe new life into EU defence. The concept would, nevertheless, benefit greatly from US support. And if EU countries are going to convince Washington of its merits, they must now begin to deliver new military capabilities and demonstrate that they are equipped to take responsibility for peacekeeping in Bosnia and Herzegovina.