I cannot recall a time when Britain was confronted, simultaneously, by such a range of difficult and, in some cases, dangerous problems.
Iraq, and the prospect of committing UK troops to action if Saddam Hussein continues to flout international law and fails properly to disarm; the mass of intelligence flowing across my desk that points to a continuing threat of attack by Al Qaida; the lack of progress on the Middle East Peace Process which has the potential to wreak havoc well beyond that region; and more recently the disturbing developments over North Korea's nuclear programme.
In the era of globalisation the world is more interdependent than ever. Whilst that has brought many benefits, particularly economic and cultural, it has brought risks too. Alongside security concerns, there are economic concerns arising from lack of confidence in key parts of the world economy. Last year global economic growth slowed to its lowest level since the first oil price shock in the 1970s. G7 industrial production actually fell and world trade stagnated following years of steady growth. This followed the world's three largest economies, the US, Japan and Germany, all experiencing recession in 2001.
Growth picked up during 2002, led by recovery in the US. But growth in the Eurozone remains weak, particularly in Germany, and there is little sign of sustained recovery in Japan. Stock markets have fallen sharply during the course of the year, weakening hopes of a rapid investment-led recovery.
Amid these twin concerns over world security and the world economy, my message is this: that though the concerns are real and justified, Britain is well placed to face up to them.
The blunt truth is that there has never been a time when domestic and foreign policy were so closely linked. The world economy will be intimately affected by world events on peace and security, for good or ill. The British economy is hugely dependent on developments both in the US and European economies.
All of this means that for many people the defining characteristic of the modern world is insecurity. People worry about the terrorist threat; the economic slowdown; the effect on jobs and pensions; and the sense that in key areas of social behaviour, and in our asylum system, those that play by the rules are being damaged by those that don't.
It is fashionable in these times to dismiss the importance of politics and political decisions. Fashionable, but foolish. For whether we survive and prosper or decline in the face of this insecurity depends crucially on the political decisions Britain now takes.
My belief is that however tough these decisions, the right decisions are clear and should be taken regardless of short-term popularity.
* we must push on with the MEPP, whatever the problems, because otherwise we are guilty of the very double standards we are accused of
* we must continue to take a leading role in the fight against terror. Doing so doesn't make us a target. We are a target anyway, as is every country in the world in the eyes of today's breed of terrorist, and the only way to stop being a target is to stop the terrorists
* we must continue to play our full part in Europe because though difficult, there is no future in Britain marginalising itself in Europe where almost 50 per cent of our trade and many of our key alliances lie
* we must hold firm, in these uncertain economic times, to the new framework of economic management we delivered in 1997 which has given us the lowest interest rates, inflation and unemployment for decades
* we must put in the new investment in our public services, including through the tax rises that will come in this April, because already this new investment, despite the critics, is visibly improving our schools and hospitals
* we must be bold on reform, opening up public services to greater diversity of supply, consumer choice and flexibility of working, ending the "one size fits all" idea of the past. This includes university reform, where, without change, Britain will lose a vital strategic national asset
* we must enforce the changes in our criminal justice system and new penalties for anti-social behaviour, which alongside the huge investment we are making, are an indispensable part of creating a society of rights and responsibilities
* we should carry on making the choices that cut poverty, whether for children, working families or pensioners
None of these positions is easy. None will be popular in the short-term. But all help to set Britain on a course of greater prosperity, security and fairness for the long-term.
I believe more than ever before, that the central message of the Government is right: at home and abroad, we need measures that combine a tough hard-headed approach to the economic and security threats we face, with a vision of a more equal and fair society, and a more equal and fair world.
On Iraq, the choice is Saddam's. No-one wants a military confrontation with Iraq. But Iraq must be disarmed of WMD. By going down the UN route, the international community has given Saddam the chance for peaceful disarmament. If he does not seize it, he will have to be disarmed by force.
Faced with his continual defiance of the UN, and knowing as we do the risk to the region and the world, we will be failing in our duty to make the world a safer place if we allow him to continue to develop WMD unhindered. Uniquely, he has used them before. He has to be stopped before he does so again. And to rogue states developing and trading in WMD, and terrorist groups, who would acquire and use them if they could, the message must go out; they can not and will not be allowed to.
Al Qaida is a difficult enemy. Loosely organised, operating in many countries, fanatical, extreme, with no respect for human life. The threat we face is real, but our response must strike the right balance between necessary vigilance against a serious enemy, and our determination to preserve our way of life.
We have stepped up security, and for most people, life goes on as normal, but there is no such thing as 100% ecurity, and all of us must be alert and vigilant.
In the meantime, the government will continue to address the other international challenges, on the environment, on the poverty, war and famine that mark out Africa as a special problem for our world. We have to reach out to the Arab and Muslim world, and show that the hand of friendship is sincerely extended. We must understand too the anger they feel, that progress in the MEPP has been so slow, so painful, so deadly.
We must focus on moving the process forward: on security, on political reform, on the only viable solution the whole world now supports - an Israeli state, recognised by all, and a viable Palestinian state. And we have to do it quickly which is why the UK will host a conference on Palestinian reform early in the New Year. Until we give a sense of hope and progress this issue will continue to cast a dark shadow over our world. Closer to home, continuing to build a lasting peace in Northern Ireland will require more hard work, courage and commitment.
Added to all this is the enormity of some of the issues on the European front. The recent Copenhagen Summit cleared the way for the historic enlargement of Europe, which should further strengthen peace and prosperity across our continent. We are well placed in the discussions in the Convention on the future of Europe and our vision of Europe as a union of nation states co-operating in our common interest is widely shared.
And this year we will face what may be the single most important decision that faces this political generation - the question of whether to join the Euro. We see no constitutional bar to joining, and the political case for entry is overwhelming. But ultimately it is an economic union, and it is an economic case that must be made. The judgement must be whether it is good for British jobs and industry, and for the living standards of the British people. We will publish our assessment by June and if it is positive, put the case for entry in a referendum. The British people will have the final say.
So with the world economy, Iraq, terrorism, the MEPP, Africa, the environment, Europe, the Euro, this is a big and difficult agenda. We have shown on the international agenda what can be done. No-one who visits Afghanistan can fail to be impressed both by the enormous distance still to go, but also by the palpable sense of hope. Britain is now leading the world on third world aid, debt and development.
And the challenges that we as a Government have set for the second term are much closer to home, namely the living standards of our people and the improvement of public services, with schools and hospitals first.
There is real progress. In cancer or cardiac treatment or in the new hospitals being built or indeed on waiting times, no-one can dispute there is real change; and despite the furore over 'A' levels this summer, we should not forget that 2002 saw the best exam results - for literacy and numeracy, for GCSEs, for 'A' levels Britain has ever seen. The 16 per cent cut in street crime following the street crime initiative shows what can be done. We now have the lowest level of unemployment in any major industrialised economy. And I defy anyone to visit a Sure Start programme in any part of Britain today and say the investment doesn't matter.
That is not to deny the problems: the failures in transport; still an insufficiency of capacity in the NHS; still too many failing secondary schools; poor conviction rates in the CJS. But we should set problems and progress in a context that is balanced. And where progress has been made, it has been made because we have held firm to the reform path.
So that is where we will be in the coming year. A year of challenge; big challenges requiring big decisions, requiring strong leadership and direction. We will do our best to provide it.