Gordon Brown is to abandon controversial plans to introduce compulsory ID cards for all.
Instead, the Prime Minister will focus on tightening up existing anti-terror laws and on new measures to be unveiled in Tuesday's Queen's Speech.
The cards are already compulsory for asylum-seekers and their introduction next year for foreign nationals will go ahead as planned.
But the proposed roll-out to force all Britons to carry them will be shelved indefinitely, according to Whitehall sources.
Mr Brown was persuaded that the 7billion scheme would inevitably be challenged in both UK and European courts and the last thing he needs is for the war on terror to become bogged down in litigation.
Last week existing legislation was thrown into disarray when Law Lords ruled that curfews on terror suspects were a breach of human rights to liberty.
And senior government law advisers have told Mr Brown that ID cards for all would make "no significant contribution" towards beating the terrorists.
A minister involved in the original ID card plan proposed by former premier Tony Blair said: "Time and technology has moved on. We now have photo driving licences and isometric passports are being introduced. They fulfil the role of ID cards."
An ID card rethink risks Mr Brown being accused of a U-turn, but both the Tories and the Lib Dems have previously voted against the scheme.
The new anti-terrorism bill will impose a travel ban on convicted terrorists after they have completed their sentences and boost jail terms for those found guilty of sheltering terrorists or giving them information they need to carry out attacks.
It will also put the counterterrorist DNA database on a legal footing so key evidence cannot be ruled inadmissible in court and end the right to silence for terror suspects.
There will also be enhanced powers to deport foreign nationals convicted of serious crimes.
Mr Brown has already made a series of U-turns on policies outlined during Tony Blair's regime, including on cannabis classification, a planned supercasino in Manchester, 24-hour drinking and inheritance tax.
But he faces another battle in Parliament if he tries to extend the current 28-day limit for holding terror suspects without charge to 56 days. Previous attempts to up that to 90 days have been blocked by the Lords.
BROWN'S OTHER IDEAS
Other measures to be included in Mr Brown's law-making programme are:
Automatic eight-year jail terms for anyone over 18 caught carrying illegal firearms.
Curbs on the early release of the most dangerous gangsters.
New police powers to disperse youth gangs on the streets.
Tougher sanctions on bosses who try to dodge the national minimum wage.
A new Commission to replace the discredited Child Support Agency with extra powers to track down absent parents who refuse to pay for their children.
Upgraded checks on GPs and other health professionals, as recommended by the inquiry into "Dr Death" Harold Shipman.
MPs will have the final say on going to war and signing international treaties.