IF IT'S HARD TO FIGHT AN ENEMY who has outposts in your head, Gordon Brown's decision to bring Peter Mandelson into his cabinet is a high-risk psychological gamble. Number 10's former communications director, Alastair Campbell, once suggested to Tony Blair that he hold an "honesty" press conference, where he would openly admit that "Gordon and Peter really do hate each other". Now Mandelson, once Brown's sworn enemy, is inside and at the centre of his adversary's compound, and, according to some close to Brown,"has been given the power to turn Gordon into a Blairite hostage".

While much of Friday's reshuffle centred on who was up, who down, and whom the prime minister really couldn't afford to move in these extraordinary financial times, Mandelson's re-entry into the cabinet after four years as a trade commissioner in Europe was accompanied by a clear-out inside Number 10 that leaves Mandelson with the two areas of expertise he believes he excels in. And they are not the international trade credentials on which the prime minister focused last week.

Gone from Number 10, in what Brown will be hoping is day zero of a failed and now remodelled administration, are Stephen Carter and Damien McBride.

Carter was the key figure of a previous relaunch, brought in to be the independent mind that would oversee a culture-change of Brown's old guard, who had been schooled in the in-fighting of "opposition" against Blair for a decade. A former head of Ofcom and a leading public relations firm, Carter was supposed to become Brown's most senior political adviser and effectively his chief of staff. But the circle of loyalists and retainers around the prime minister never let Carter change much.

Sidelined, and now despatched to the Lords for his efforts, Carter's inability to change Gordon Brown, according to one former Treasury insider, means "Gordon doesn't do change. Stephen Carter was a bold gesture that went wrong quickly. Mandelson is a challenge of an altogether different magnitude. Only this time it can't be allowed to go sour. If Peter Mandelson doesn't have things done his way, or Gordon simply doesn't listen and continues to do things the way he's always done, namely get what he wants, then Peter will walk. That would end it for the Labour Party. So is this a hostage situation? Yes, it is."

Strategy is what Mandelson did best in the early years of New Labour. And it was noticeable that, with the announcement of Carter's departure, there was no parallel announcement of who would be taking his place. The reality is that Brown no longer needs a dedicated Number 10 strategist. For now, Mandelson holds that job in addition to his formal title of secretary for business, enterprise and regulatory reform.

McBride's departure is equally significant. "Pugnacious" is the word often used to describe Brown's political press chief. Other words were being used to describe McBride in Manchester at Labour's conference a fortnight ago, none of them in the family section of any dictionary. McBride has been Brown's attack dog, working in the shadows and regarded as the briefer-in-chief who targeted ministers and Cabinet ministers who deviated from Brown's party line.

McBride's departure will have been greeted by cheering and flag-waving in some sections of the government, and among some of the better-connected back-benchers. Off to a less frontline role inside the Cabinet Office alongside the newly-promoted Liam Byrne, McBride's place has been officially taken by Justin Forsyth, the former Oxfam policy spokesman.

But Forsyth may quickly find he has two, even three, masters. Mandelson and Campbell were the architects of New Labour's first communications and media structure. It was both a distributor of ideas and an early warning system, targetting and disciplining those in Labour not on-message with the new project that would take Tony Blair to three general election victories.

Campbell is now back, albeit with an informal and freelance role. According to one former Number 10 spin doctor: "What works for Peter and Alastair is operating in a comfort zone where they know in advance what shit is about to hit the fan. That means they need to get inside wherever it is they are. Forget talk of loose connections and letting other people get on with their job. Mandelson will have given Brown the conditions in which he was prepared to come back."

Although Mandelson said last week that had been astonished at being asked to return to a Cabinet post for the third time in his chequered career, others close to Brown claim the two had been having long telephone discussions over the summer parliamentary recess, discussing what had happened in the by-election defeat in Glasgow East and what could be done to avert further defeats. But over the past two weeks the communication between the two men is said to have intensified, with Brown finally deciding last week that Mandelson inside the government was something he would have to gamble on.

Whatever the deal for Mandelson to return, Brown's closest Cabinet ally, the schools secretary Ed Balls, admitted yesterday that Brown had indeed weighed up the pros and cons of bringing back Mandelson from Brussels, and had decided the "risk" (Balls's word) was worth it.

For those who believe only party unity can help save Labour from a landslide defeat at the next general election, Mandelson is a risk too far. Peter Kilfoyle, a former minister, said he accepted the principle that the reshuffle had a purpose and that Brown was trying to address what was needed in order to fight an organised battle come the election. "But to recall a twice-disgraced Cabinet minister is a thoroughly retrograde step which will do nothing to promote unity within the party," said Kilfoyle. "Mandelson's appointment is highly divisive, and he remains a highly divisive figure within the Labour movement."

Another on the left wing of the party, John McDonnell, who ran a token leadership bid last year, said he was "absolutely gobsmacked" and that the wider party would be perplexed at Brown's motives. He said "This is an extraordinary step backwards into the worst elements of the Blair era."

McDonnell almost got it right. Brown's era was failing and failing badly. The Blair era, with political choreography delivered by Mandelson and Campbell, changed Labour's fortunes. Brown may simply believe that Mandelson's strategic magic, but not his personal failings, will rub off and that it is worth sacrificing personal enmity for public success.

Other MPs and advisers, some of whom have given up trying to work out how Brown thinks, put the appointment of Mandelson down to the brutal reality of basic survival. One MP who wanted Brown to go before the summer break and was disappointed that the move of the foreign secretary, David Miliband, amounted to nothing more than a "whimper of ambition", said: "This isn't about Labour's long-term survival, it's about the prime minister's short-term survival. Gordon has been surviving by getting to dates when he thinks a challenge to his authority will diminish. It was get to the summer break, it was get to the conference, now it's get to next June and the European elections. And if it is June, a new target date will emerge. And meanwhile the polls continue to tell us is that Labour is heading for a fall, and all we do is buy into the next and the next survival plan."

Glenrothes, according to one Nunber 10 adviser, "was never a crucial date". The message is that Number 10 has already written off Glenrothes as spilt milk: it is gone, and they need to look beyond another loss to the SNP.

If Mandelson is part of the sur-vival plan, what difference can he make for Brown? The financial storms hitting global markets mean that a new challenge against Brown's captaincy is unlikely between now and next summer. But a government as accident-prone as Brown's can't assume plain sailing ahead, even though the storms seem to have gifted Brown a narrative that has, almost overnight, made him look more prime-ministerial and gave his conference performances in Manchester a resonance that even a week earlier looked more wish-list than based on any reality.

With Blairite ministers and Cabinet members still a danger for Brown, there remained the option of offering a big promotion to one of the big beasts of the Blair years. A summer rumour was that Alan Milburn, the former health secretary, would return, perhaps as chancellor, in an extraordinary gesture of unification by Brown. That proved to be nonsense. Other suggestions have been the rehabilitation of Stephen Byers, the former transport secretary. That too proved a non-starter. John Reid has effectively left front-line politics, and Charles Clarke remains a nuclear option for Brown.

Mandelson, despite the hatred between the two men that dated back to the 1994 period when Mandelson chose to be the king-maker to Blair rather than Brown, was increasingly seen as the individual who could unite Brown's struggling government. Mandelson's trade experience in Brussels is, for one former minister, "as decent an excuse as they could come up with". He added: "If he'd been in charge of a ferret farm in Yorkshire, Brown would have worked the importance of Yorkshire and the north into his reasons for bringing Peter back."

But just in case any MPs got the wrong idea that Brown had suddenly gone soft, the appointment of Nick Brown as chief whip is a reminder that a renewal of warfare will be dealt with. If Mandelson is Brown's inclusive card, Nick Brown is the prime minister's insurance policy, to be used on a take-no-prisoners basis when the first hint of new rebellion surfaces.

Just as Mandelson walked towards the massed television cameras in Downing Street on Friday, complete with smart red "old Labour" pullover, and barely hiding a smug grin, William Hague, himself a comeback kid of sorts, said "You can only conclude that this appointment was designed to distract from the changes Gordon Brown should have made. By leaving in place a chancellor who has failed and a foreign secretary who has undermined him at every opportunity, Gordon Brown has been exposed as weak. This is a stunning failure of judgment."

Hague added that Brown had achieved the impossible by "making this government look even more dysfunctional." Like McDonnell, Hague almost got it right. Brown is weak, but it will be argued that he remains strong enough to invite his worst enemy into the camp. As Abraham Lincoln once said: "The best way to destroy an enemy is to make him your friend."

So can Mandelson become, overnight, Brown's friend? According to a former Cabinet minister who was in Blair's first government, Mandelson can never be Brown's friend. "Peter Mandelson, we will very soon learn, is Britain's effective deputy prime minister, and Brown has chosen to be a hostage to the Blairites rather than leave Number 10. But Mandelson's friend? Not until hell freezes over."