Updated at 7:04 p.m. ET
Conservative Party leader David Cameron became Britain's youngest prime minister in almost 200 years Tuesday after Gordon Brown stepped down and ended 13 years of Labour government.
Nick Clegg, leader of the third-placed Liberal Democrats, drove a hard bargain in return for his support in a coalition deal. Cameron appointed his new partner as deputy prime minister and awarded Clegg's group four other Cabinet posts.
The agreement, reached of five occasionally tense days of negotiation, delivered Britain's first full coalition government since World War II.
Cameron and Clegg's pact was sealed after the Conservative Party won the most seats but did not get a majority in the country's national election last week.
Britain's government confirmed Clegg had been appointed by Queen Elizabeth II as deputy prime minister - a rarely used, but coveted Cabinet post title.
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Cameron's Conservative Party said ex-leader William Hague will serve as Foreign Secretary, senior lawmaker George Osborne as Treasury chief, and lawmaker Liam Fox as defense secretary.
Other leading positions were being finalized, as were key policy decision ahead of the presentation of the coalition's first legislative program later this month.
In Washington, President Obamaand invited Cameron and his wife to visit Washington in July. The White House says Mr. Obama congratulated Cameron on running a successful campaign. Mr. Obama told Cameron that he looked forward to meeting him at an international economic summit to be held in Canada June 25-27.
London's Downing Street said Mr. Obama and Cameron discussed Afghanistan, the Middle East peace process and Iran.
Both Cameron and Clegg have expressed doubts over the Afghanistan mission, but Cameron has pledged not to withdraw troops for at least five years.
Cameron also took a call from German Chancellor Angela Merkel and held a brief discussion on Europe and the world economy, the office said in a statement.
Cameron, 43, said it would be "hard and difficult work" to govern as a coalition but added that Britain had serious economic issues to tackle. Cameron visited Buckingham Palace and was asked to form a government by the queen less than an hour after Brown tendered his resignation to the monarch.
Arriving at London's Downing Street hand in hand with his wife Samantha, Cameron said he believed that Britain's "best days lie ahead."
Hundreds of onlookers, many of them booing, crowded the gates of Downing Street to watch on, as Cameron swept into his new home less than 90 minutes after an emotional Brown had made a farewell address.
"We have some deep and pressing problems - a huge deficit, deep social problems, a political system in need of reform," Cameron said. "For those reasons, I aim to form a proper and full coalition between the Conservatives and the Liberal Democrats."
"Nick Clegg and I are both political leaders who want to put aside party differences and work hard for the common good and for the national interest," Cameron said.
Standing outside 10 Downing St. alongside his wife Sarah, Brown spoke in strained tones as he wished Cameron well.
"Only those who have held the office of prime minister can understand the full weight of its responsibilities and its great capacity for good."
Brown said he had "loved the job, not for its prestige, its titles and its ceremony, which I do not love at all."
"No, I loved the job for its potential to make this country I love fairer, more tolerant, more green, more democratic, more prosperous, more just - truly a greater Britain."
In a statement, Mr. Obama thanked Brown for his friendship and his service as head of the outgoing Labour government. Obama said Brown "provided strong leadership during challenging times, and I have been grateful for his partnership."
After Brown's brief statement, the 59-year-old Brown walked hand-in-hand with his wife and young sons John and Fraser down Downing Street, where a car waited to take him to the palace.
Brown spent about 15 minutes inside the palace and was then driven away - no longer Britain's leader. Minutes later he arrived at Labour Party headquarters, where he was greeted warmly by cheering staffers.
Brown told party staff that his deputy Harriet Harman would become interim Labour leader until a formal leadership takes place to select his permanent successor.
Brown's resignation ended five days of uncertainty after last week's general election left the country with no clear winner. It left Britain with its first so-called hung Parliament since 1974. Britain's Conservatives won the most seats but fell short of a majority, forcing them to bid against the Labour Party for the loyalty of the Lib Dems.
Liberal Democrat Treasury spokesman Vince Cable said the details of a deal were being worked on, but he would be "very surprised" if an agreement was formally announced before Wednesday.
"Nothing has been formally agreed," he said. "There has been a lot of progress.
"The details are currently in the process of being sorted."
Clegg's Liberal Democrats have a more complex process, and may need to hold a meeting of around 200-300 grass roots members to formally ratify the coalition. Their joint government needs to be in place in time to draft a legislative program that will be announced in Parliament on May 25.
Brown's departure follows three successive election victories for his center-left Labour Party, all of which were won by his predecessor Tony Blair, who ousted the Conservatives in 1997.
Labour lawmakers had downplayed the chances of their party clinging to power, saying they lacked the mandate to govern after finishing a distant second in last week's election to the Conservatives.
"We have got to respect the result of the general election and you cannot get away from the fact that Labour didn't win," Labour's Health Secretary Andy Burnham told the BBC.
Some Labour lawmakers said they feared any pact between Labour and the Liberal Democrats - dubbed a "coalition of the defeated" by Conservatives - would lack legitimacy.
Public dissent had grown visible. Crowds grew outside government buildings on Tuesday with some people shouting at passing lawmakers, "Make up your mind!" Others unfurled banners calling for the political system to be overhauled.
"We think there is something exceedingly wrong with the current electoral system, where a minority party such as the Liberal Democrats requires three times as many votes as the winning party," said Haydn Maidment, 30, from the group Unlock Democracy. "What we vote for is not what we receive."
Clegg's Liberal Democrats are reported to have won concessions from Cameron on their key demand - that Britain change its voting system toward a more proportional system.
Although Cameron's party bitterly opposes changing the current voting system - which favors Britain's two main parties, Conservatives and Labour - negotiators have pledged to "go the extra mile" to strike an agreement with Clegg.
Cameron's team said they offered a public referendum on a more proportional system - but confirmed they will campaign still against any changes. They said Liberal Democrat lawmakers would be offered Cabinet posts, meaning Clegg could even be appointed as deputy prime minister.
Clegg wants a European-style proportional representation voting system, which he believes could greatly increase his party's future seats in Parliament. In the latest election, Liberal Democrats won almost a quarter of the overall vote but only 9 percent of House of Commons seats.
Most European countries use proportional-representation rules for elections, allowing parties that win 10 percent of the vote to get about 10 percent of the parliamentary seats. The system makes coalition governments common, but it also involves longer, more complex votes with several rounds.
Close results are much more common with proportional representation than in the single-winner approach observed in Britain, whose system now tends to yield large majorities in Parliament.