LONDON (AP) -- David Cameron, the youthful leader who modernized the party of right-wing icon Margaret Thatcher, became prime minister Tuesday after the resignation of Gordon Brown -- capping a gripping election saga that returns the Tories to government after 13 years of Labour Party rule.
Following tradition, Queen Elizabeth II appointed Cameron at Buckingham Palace -- a stately denouement to a behind-the-scenes dogfight between Cameron and Brown for the cooperation of Britain's third-place party, after an election that left no party with a majority.
Within minutes, the 43-year-old Cameron was installed at No. 10 Downing Street, becoming the youngest prime minister in almost 200 years, since Lord Liverpool took office at age 42.
An announcement followed that Liberal Democrat leader Nick Clegg would become deputy prime minister -- a rarely awarded and prestigious post -- after days of hard bargaining with his former political rivals. Four other Liberal Democrats also received Cabinet posts.
Cameron and Clegg agreed to form a coalition after Cameron's Conservative Party won the most seats in Britain's May 6 national election, but fell short of winning a majority of seats in Parliament. The agreement, reached over five sometimes tense days of negotiation, delivered Britain's first full coalition government since World War II.
"Nick Clegg and I are both political leaders who want to put aside party differences and work hard for the common good and for the national interest," Cameron said.
President Barack Obama telephoned to congratulate Cameron, and invited him to visit Washington this summer, according to the White House. Obama told Cameron that he looked forward to meeting at an international economic summit to be held in Canada next month.
Britain's new government could spell changing relationships with its foreign allies.
Both Cameron and Clegg have signaled they favor looser ties to Washington than those held by Brown and his predecessor, Tony Blair. Cameron and Clegg back the Afghanistan mission but Cameron hopes to withdraw British troops within five years. Clegg has said he's uneasy at a rising death toll.
Relations with European neighbors could also become problematic. Cameron's party is deeply skeptical over cooperation in Europe, and has withdrawn from an alliance with the parties of Germany's Angela Merkel and France's Nicolas Sarkozy. Clegg, once a member of the European parliament, has long been pro-European.
The Conservative Party said ex-leader William Hague will serve as Foreign Secretary, senior lawmaker George Osborne as Treasury chief, and lawmaker Liam Fox as defense secretary. Other leading positions were being finalized, as were key policy decisions ahead of the presentation of the coalition's first legislative program on May 25.
The coalition has already agreed on a five-year, fixed-term Parliament -- the first time Britain has had the date of its next election decided in advance. Both parties have made compromises, and Cameron has promised Clegg a referendum on his key issue: Reform of Britain's electoral system, aimed at creating a more proportional system.
"We are going to form a new government -- more importantly, we are going to form a new kind of government," Clegg said in a news conference after his party's lawmakers overwhelmingly approved his decision to enter a coalition with Cameron.
Their priority will be to spur a once high-flying economy, rooted in world-leading financial services, that has run into hard times. At least 1.3 million people have been laid off and tens of thousands have lost their homes in a crushing recession. Cameron has pledged an emergency budget within 50 days.
Arriving at London's Downing Street hand-in-hand with his wife, Samantha, Cameron said he believed that Britain's "best days lie ahead."
"We have some deep and pressing problems -- a huge deficit, deep social problems, a political system in need of reform," Cameron said. "For those reasons, I aim to form a proper and full coalition between the Conservatives and the Liberal Democrats."
Cameron, who became Conservative leader in 2005, has overhauled his group -- which a senior colleague once acknowledged had earned its nickname "the nasty party." He took up a green agenda, softened the tone of policy on immigration and promoted more female and ethnic minority candidates.
Hundreds of onlookers, many of them booing, crowded the gates of Downing Street to watch on, as Cameron swept into his new home in a silver limousine.
Less than 90 minutes earlier, an emotional Brown made a brief farewell address outside 10 Downing St., speaking in strained tones as he wished Cameron well.
"Only those who have held the office of prime minister can understand the full weight of its responsibilities and its great capacity for good," said Brown, who held the job for three years.
The 59-year-old Brown then walked hand-in-hand with his wife, Sarah, and young sons John and Fraser down Downing Street, where a car waited to take him to the palace for a 15-minute meeting.
Minutes later he arrived at Labour Party headquarters, where he was greeted warmly by cheering staffers.
Brown told party workers his deputy Harriet Harman would become interim Labour leader until a formal leadership takes place to select his permanent successor.
Labour, which lost 91 seats and finished behind the Conservatives in the election, opened their own formal talks with Clegg's party Tuesday but saw the chances of a deal quickly vanish.
Senior Labour legislators said they feared such a pact -- dubbed a "coalition of the defeated" by some -- would lack legitimacy and anger the public, who would exact revenge on the party at a future election.
"I think we have got to respect the result of the general election and you cannot get away from the fact that Labour didn't win," Labour's Health Secretary Andy Burnham told the BBC.
Clegg's party said in a statement that Labour Party officials "see opposition as a more attractive alternative to the challenges of creating a progressive, reforming government."
Brown's resignation ended five days of uncertainty after last week's general election left the country with no clear winner. The vote left Britain with its first so-called hung Parliament since 1974. Britain's Conservatives won the most seats but fell short of a majority, forcing them to bid against the Labour Party for the loyalty of the Liberal Democrats.
Conservative and Liberal Democrat teams met for several hours Tuesday. Rank-and-file members of the two parties held separate talks in London late into the night and both approved the coalition deal.
Former Liberal Democrat leader Paddy Ashdown said the coalition had agreed on a policy platform all members of his party would be proud of. But he said he regretted that Labour had failed to strike a deal with his party.
"The Labour Party had an opportunity to create a progressive coalition and they walked away from it," Ashdown said. "That was an act in my view of straight cowardice."
Brown's departure follows three successive election victories for his center-left Labour Party, all of which were won by Blair, who ousted the Conservatives in 1997.
Associated Press Writers Danica Kirka, Jennifer Quinn, Raphael G. Satter and Jill Lawless contributed to this report.
(Copyright 2010 by The Associated Press. All Rights Reserved.)