The British prime minister made the comments on Tuesday in his final speech to a Labour party conference.
Blair has been his party's most successful leader, winning three successive elections, but admitted "you can't go on forever... That's why it is right that this is my last conference as leader".
Despite his victories in the ballot box, Blair's popularity has plummeted both with the public and within his own party, mainly as a result of his foreign policy including the war in Iraq.
He defended these policies and his close relationship with the US which has in the past led some to call him George Bush's lapdog.
"Yes, it's hard sometimes to be America's strongest ally," he said at the conference in Manchester.
"At the moment I know people only see the price of these alliances. Give them up and the cost in terms of power, weight and influence for Britain would be infinitely greater."
He denied that his foreign policy had increased terrorist attacks.
He highlighted that terrorism killed nearly 3,000 people in the United States on September 11, 2001 "before the war in Afghanistan or Iraq was even thought of".
"It preys on every conflict. It exploits every grievance. And its victims are mainly Muslim. This is not our war against Islam. This is a war fought by extremists who pervert the true faith of Islam."
Blair was forced to declare his departure next year after nearly a decade in charge after a rebellion by junior government members in his party.
Some believed that unrest was down in some part to Gordon Brown, the chancellor and favourite to be the country's next leader.
'Hard act to follow'
However, the incumbent prime minister was full of praise for the heir apparent describing him as "a remarkable man, a remarkable servant".
But he stopped short of fully endorsing Brown as his successor and the praise was not as gushing as the compliments paid by the chancellor in his speech to party delegates on Monday.
Blair has yet to fully endorse
Brown (R) as his successor
Blair received a seven-minute standing ovation and Labour hoped the speech would draw a line under internal party divisions over choosing a successor to Blair.
However, those divisions refused to diminish on Tuesday after it was reported that the prime minister's wife, Cherie, had said that Brown was lying during his praise of Blair on Monday. She denied the comments.
Labour Party member Yasmin Qureshi said Blair would be a "hard act to follow".
But sounding the right tone she added: "That doesn't mean to say that Gordon couldn't be a good leader and prime minister."