Britain can no longer "tiptoe around" the divisive issue of immigration, a Minister insisted last night.
Local Government Secretary Ruth Kelly said tensions between ethnic groups and religions must be faced head on.
In a speech which marked a major change of tone for Labour on the issue of immigration, she launched a new Commission on Integration and Cohesion which will try to find ways of bridging divisions.
Ms Kelly admitted the consensus over multiculturalism had collapsed, and said white people had been alienated by the level of change in their communities.
In an echo of former Conservative leader Michael Howard's controversial slogan during the last General Election, she said it was "not racist" to debate immigration and asylum.
The Tories used the slogan "it is not racist to impose limits on immigration" in the 2005 poll.
The decision to establish the commission was taken in the wake of last year's July 7 bomb attacks in London.
Chaired by Darra Singh, chief executive of Ealing Council, it will tour Britain and examine issues such as how children attending different faith schools can be encouraged to get to know each other.
Speaking at the Commission's launch, Ms Kelly said: "In our attempt to avoid imposing a single British identity and culture, have we ended up with some communities living in isolation from each other with no common bonds between them?"
International events increasingly impacted on community relations.
"Global tensions are being reflected on the streets of local communities," she said.
She also warned of the dangers of white Britons becoming alienated by the pace of social change.
"They see the shops and restaurants in their town centres changing. They see their neighbourhoods becoming more diverse.
"Detached from the benefits of those changes, they begin to believe the stories about ethnic minorities getting special treatment, and to develop a resentment, a sense of grievance."
Ifath Nawaz, chairwoman of the Association of Muslim Lawyers and a member of the taskforce set up by the Government in the wake of the July 7 attacks, said Ministers needed to provide more resources to improve living conditions for Muslims.
"What's required is not another commission but actually funding to deal with the issues and the problems out there."
But the Bishop of Rochest er, Michael Nazir-Ali, warned that multiculturalism had not worked.
"The tendency to recognise communities living cheek by jowl, as it were, in ghettoes... has created a sort of segregation which has not been helpful to cohesion and to integration."
Conservative Shadow Home Affairs Minister Damian Green said: "There is a huge and vital challenge to be met in helping Britain's new communities integrate fully with the mainstream values of British society."
Liberal Democrats blamed the invasion of Iraq for causing divisions.
Spokesman Nick Clegg said: "Any attempt to reach out to disaffected members of our Muslim communities must also incorporate an honest debate about this Government's foreign policy."