London, England - Downing Street appeared to be wavering today on allowing Catholic adoption agencies exemption from gay rights legislation, after a warning from the leader of Catholics in England and Wales that agencies may close rather than comply with the regulations.
Cardinal Cormac Murphy-O'Connor, the Archbishop of Westminster, said the church would have "serious difficulty" with the proposed regulations, putting a total of 12 Catholic adoption agencies at risk of closure.
This morning the prime minister's official spokesman admitted that Mr Blair still had to make his mind up on the issue.
The regulations, part of the Equalities Act 2006, are designed to give gay and lesbian couples the same protection against discrimination under the law as ethnic minorities.
But Cardinal Murphy O'Connor has warned that the law would force Catholics to "act against the teaching of the church and their own consciences".
Mr Blair's official spokesman said: "This is an issue with sensitivities on all sides and the prime minister recognises that, and that is why it is worth having some discussions in government before we come to a decision.
"The key thing we have to remember in all of this is the interests of the children concerned and that there are arguments on both sides.
"This is not a straightforward black-and-white issue. This is an issue where there are sensitivities on all sides and we have to respect those but equally find a way through."
Weekend reports speculated that both Mr Blair, whose wife and family are Catholic, and Ruth Kelly, the communities secretary - who is a member of the Catholic sect Opus Dei - were in favour of allowing the church some form of exemption.
Cardinal Murphy-O'Connor released a letter the church had sent to Downing Street, saying: "We believe it would be unreasonable, unnecessary and unjust discrimination against Catholics for the government to insist that if they wish to continue to work with local authorities, Catholic adoption agencies must act against the teaching of the church and their own consciences by being obliged in law to provide such a service."
The cardinal said it would be an "unnecessary tragedy" if Catholic agencies were forced to close - rather than being forced to consider homosexual couples as potential adoptive parents.
The act is due to come into power in April, but Downing Street would not be drawn on a timetable for discussions exempting Catholic adoption agencies.
The Department for Communities and Local Government - headed by Ms Kelly - is considering whether to allow exemptions when the details of the regulations for England and Wales are produced later this year.
But, in a sign of friction around the cabinet table, the lord chancellor, Lord Falconer, today appeared to rule out any chance of a compromise, saying religions should not be excused from the legislation.
"I do not want to see any adoption agencies, which do a very good job, closing," he told BBC Radio 4's Today programme.
"But we have committed ourselves to anti-discrimination law - on the grounds of sexual orientation - and it is extremely difficult to see how you can be excused from anti-discrimination law on the grounds of religion.
"Each individual adoption agency must make its judgment on the basis on which it places a child, and the child's interests are paramount.
"But if we take the view as a society that we should not discriminate against people who are homosexual, you cannot give exclusions to people on the grounds that their religion or their race says 'we don't agree with that'.
"The view about discrimination is one that has been taken by the country as a whole."
Asked about reports that Mr Blair backed the church's stance, he said simply: "The cabinet has got to make a conclusion about it but what I set out is the principles which should be applied."
The Labour MP Chris Bryant, himself gay and a former Anglican vicar, accused the cardinal of "putting dogma before children".
He said: "I think the cardinal is out of touch with most ordinary Catholics who believe the most important issue is the interests of the child.
"There are many splendid gay parents and we should be celebrating that rather than slamming the door in their face.
"It's a shame the cardinal is putting dogma first."
The cardinal wrote in his letter that the Catholic church "utterly" condemned all forms of unjust discrimination, violence, harassment or abuse directed against gay people.
He said that the church recognised "many elements" of recent legislation - including the Northern Ireland regulations - which take steps to ensure that no such discrimination takes place.
He said that gay couples who approached the Catholic adoption agencies were currently referred to other agencies where their adoption application might be considered.
But he said that plans to force Catholic adoption agencies to consider adoption applications from such couples would require them to act against Catholic teaching on marriage and family life.
According to the church, there are a total of 12 Catholic adoption agencies in England and Wales, which are responsible for about 4,000 voluntary sector adoptions.
Around 32% of the children they place for adoption are classified as having special needs.
A spokesman for the Catholic Bishops' Conference of England and Wales said: "It is not that the bishops are threatening to close them.
"The point is that, in the worst-case scenario, they would have to close because, essentially, their funding would cease."
The Rev Martin Reynolds, director of communications for the Lesbian and Gay Christian Movement, said: "It is sad to see the Roman Catholic church holding the government to ransom.
"We believe that the best interests of children are not being served by this political game-playing."
Terry Sanderson, president of the National Secular Society, said: "The Catholic church must not be permitted to control our legislature through this kind of blackmail.
"It did the same thing over the faith school quotas proposed last month and successfully blew the government off course.
"If it manages to achieve the same result with these regulations, we need to ask who is running this country - the government or the Vatican?"
The Tory MP John Bercow, who has argued strongly in favour of gay equality, said: "The idea of an exemption for Catholic adoption agencies is an anathema and contradicts the concept of equality at the heart of this legislation.
"People choose their religion, they do not choose their orientation.
"I believe equality is equality is equality and it is quite incredible for the Catholic church to insist its religious views should take precedence over others' human rights."