A statement from the so-called Quartet of Mideast peace mediators said the former British prime minister, who stepped down earlier Wednesday, will seek to mobilize international assistance to the Palestinians and develop plans to promote Palestinian economic development.
Blair will also seek international support to address the needs of Palestinian government institutions, "focusing as a matter of urgency on the rule of law," said the statement.
Israeli Prime Minister Ehud Olmert welcomed Blair's appointment, describing him as a true friend of Israel, reports CBS News correspondent Robert Berger. But Palestinians are skeptical because Blair supported the war in Iraq and Israel's war in Lebanon last summer. Hamas, which rules Gaza, said Blair will not be fair on any issue related to the Israeli-Palestinian conflict.
In other developments:
"The urgency of recent events has reinforced the need for the international community, bearing in mind the obligations of the parties, to help Palestinians as they build the institutions and economy of a viable state in Gaza and the West Bank, able to take its place as a peaceful and prosperous partner to Israel and its other neighbors," the Quartet statement about Blair said.
"To facilitate efforts to these ends, following discussions among the principals, today the Quartet announced the appointment of Tony Blair as the Quartet Representative," it said.
U.N. spokeswoman Michele Montas announced the appointment and released the statement.
Blair left 10 Downing Street earlier Wednesday, after a decade as British prime minister.
Blair will replace former World Bank head James Wolfensohn, who quit in frustration after less than a year in the post. Little came of his efforts to bring Israelis and Palestinians together after Israel's 2005 withdrawal from Gaza, which was followed by rising violence and a Hamas victory in parliamentary elections last year.
The Quartet unveiled a road map to peace in 2003, with simultaneous steps by Israel and the Palestinians, culminating in the establishment of a Palestinian state. But implementation of the road map has been stalled for several years.
According to the Quartet statement, Blair will work with a small team of experts, based in Jerusalem, from partner countries and institutions.
"As representative, Tony Blair will bring continuity and intensity of focus to the work of the Quartet in support of the Palestinians, within the broader framework of the Quartet's efforts to promote an end to the conflict in conformity with the road map," the statement said.
"He will spend significant time in the region working with the parties and others to help create viable and lasting government institutions representing all Palestinians, a robust economy, and a climate of law and order for the Palestinian people," it said.
In the new position, Blair will take on a task that has bedeviled many before him. The last Quartet envoy, former World Bank chief James Wolfensohn, stepped down in frustration after less than a year on the job following Israel's withdrawal from Gaza in 2005.
Blair's role is complicated by Hamas' takeover of Gaza, the weakness of Palestinian and Israeli leaders, and animosity deepened on both sides by six years of conflict. Still, the outgoing British prime minister brings new credibility to international efforts to forge peace in the region. Officials in Israel and Palestinian President Mahmoud Abbas' Fatah movement already have reacted positively to the prospect of working with him.
Olmert called Blair on Tuesday night to wish him well as he left office, the Israeli leader's office said. Olmert told Blair "that he is a true friend of the state of Israel and added that if he accepts the position of the Quartet envoy to the region, Israel would cooperate with him to the fullest," the statement said.
Hamas, however, was not enthusiastic. The Islamic militant group, which recently routed Fatah forces in Gaza, said Blair was too close to the U.S. and would not be an impartial mediator.
"We expect Blair will not be a good man in this position," said Hamas spokesman Ghazi Hamad. "In the time he was prime minister of Britain, he was not honest and was not helpful in solving the conflict."
Israeli fire struck a Gaza City house, killing four people, including a 12-year-old boy, medics said. Witnesses said militants were seen in the area. Five militants were killed in fighting with the Israelis in another outlying part of the city, Palestinians said.
In southern Gaza, an Islamic Jihad militant was killed in a clash with troops in the town of Khan Younis. Hospital officials said a total of 40 people were wounded by Israeli shells in Gaza City.
Two more Palestinians died in other violence. In Khan Younis, a Hamas militant was killed while mishandling explosives, and a senior Islamic Jihad member was killed in what Palestinians said was an air strike. Israel, which usually acknowledges air strikes, denied involvement.