Gordon Brown has announced an international fund to reintegrate Afghan Taliban soldiers.
He is meeting with President Hamid Karzai and high-profile delegates from 69 countries for crucial talks.
United Nations secretary general Ban Ki Moon and US secretary of state Hillary Clinton are among those present.
Mr Brown announced: “As an international community responding to President Karzai’s leadership, we are today establishing an international trust fund to finance this peace and re-integration programme to provide an economic alternative to those who have none.
“But for those insurgents who refuse to accept the conditions for re-integration, we have no choice but to pursue them militarily.”
He told the conference that more power would be handed to Afghan forces this year.
“It will take time but I believe that the conditions set out in the plan that we will sign up to today can be met sooner than many expect and, as a result, the process of handover district-by-district will begin later this year,” he said.
“It will mark the beginning of a new phase and a decisive step towards Afghans taking responsibility for their own security.”
The Prime Minister said the mission is “vital to all our national securities”.
He vowed to fight those who attempt to “pervert” Islam around the world.
“We will defeat you and defeat you not just on the battle fields but in hearts and minds,” Mr Brown added.
President Karzai discussed the plan to lure Taliban members away from fighting and his measures to tackle corruption.
“Security remains our highest priority for years to come,” he told delegates in London.
When more powers are transfered to Afghan forces, the international community can focus more on rebuilding the country’s economy and institutions, he said.
President Karzai said he would make fight corruption with “all means possible” during his second term.
“We don’t know how sincere he is,” Sky’s foreign affairs editor Tim Marshall said after the speech.
“Over the last nine years, there has been rampant corruption.”
Sky’s Asia correspondent Alex Crawford, who is reporting from Kabul, said the strategy to tempt the insurgency into dropping their weapons could be controversial.
“Three-quarters of those who are fightint along side the Taliban are doing so for monetary reasons,” she said. “They have no jobs and no future.”
