LIBERAL Democrat leader Charles Kennedy has warned Tony Blair that meeting terror with terror would undermine democracy.

In his closing speech to the party conference, he said "liberalism and fundamentalism are fearsome enemies", but "dissent, democracy and debate must never be beaten by bullets, barbarism and bombs".

He warned the West against indiscriminate over-reaction to the US terror outrage, and said the best solution was "international agreement, international law and international cooperation."

He also warned the Government that it must be careful over how defended Britain against terrorism.

"Cracking down on civil liberties carries a price," he said. "Liberties lost tend to be liberties hard to regain . . . in the weeks and months to come, where civil liberties are concerned, tread with care."

Although his speech was dominated by international affairs, he extended his case for democracy to other domestic issues. He conceded that private companies could have a role to play in providing public services.

"But we will never, never, never put profit before transport safety or health or education," he said.

Mr Kennedy repeated his claim to have replaced the Tories as the true party of opposition.

He also vowed that he would press the Government hard on unfinished constitutional issues - regional government in England, reform of the Lords, and proportional representation.