Maybe it's just me and not enough coffee this morning, but the way I read the article, Blair starts out by describing the current conflict between Israel and Hezbollah as a conflict between extremist Muslims and Moderate Muslims.
Then, at some point, he appears to wake up or realize what he's talking about and goes on to describe the conflict in terms that tend to make one think he gets it. However, for as much as I like Tony Blair, the position he seems to be endorsing (when you parse the second part of his statement carefully), is one of cease-fire and appeasement.
This will not resolve this conflict once and for all. Ahmadinejab is still waiting in the wings for Aug. 22 to roll around (for whatever "surprise" he intends to pull off) and Syria is gearing up to get into the fight against Israel. For all of PM Blair's pollyannish words, invoking an arbitrary cease-fire does not bring this conflict to an end - it only puts off the ending for a little longer. Like it or not (and regardless how you characterize it), it appears that the next world war (aka Crusades, the Sequel) is before us in the ME. The Muslims have been slapped down everytime they have tried this in the past and they will be slapped down again. The only remaining question is whether or not Islam should be outlawed from the face of the earth.