Ed Miliband said his "new generation" would take Labour back to power, in his first big speech as party leader.
He praised the party's achievements but said they had to face "painful truths" - such as the Iraq war being "wrong".
In an hour-long speech he pledged to be a "responsible" opposition leader and not oppose every proposed spending cut.
But he said David Cameron offered a "miserable" view of what could be achieved and said Labour were the "optimists" who would change Britain.
Ed Miliband was greeted by enthusiastic applause from delegates in the packed hall at the Manchester Central venue as he arrived with his pregnant partner Justine.
He struck a very personal tone at the start of his speech, talking about his upbringing and how his parents' experience as refugees fleeing the Nazis had shaped his values and paying tribute to his "extraordinary" brother David.
Activists cheered as he said Labour had appeared "casual" about civil liberties and said he would not let the Tories or Lib Dems "take ownership of the British tradition of liberty". And they applauded his comment that Labour's foreign policy should be "based on values, not just alliances".
However his comments about Iraq appeared to annoy his brother David, whom he narrowly beat for the party leadership.
Mr Miliband has only been an MP since 2005 and was not part of the government during the invasion of Iraq - a decision which proved divisive for the Labour Party.
"I do believe we were wrong. Wrong to take Britain into war and we need to be honest about that," he said.
But David Miliband was filmed asking Labour's deputy leader Harriet Harman: "You voted for it, why are you clapping?"
BBC political editor Nick Robinson said it suggested the older Miliband brother, who has returned to London, would almost certainly announce on Wednesday that he was stepping down from front-line politics.
On Tuesday night, David Miliband's aide confirmed the former foreign secretary would make a statement on Wednesday afternoon.
He, Alistair Darling and Andy Burnham all voted for the war in 2003.
Jack Straw, who was foreign secretary at the time of the invasion, told the BBC the new leader was not an MP at the time so had "greater freedom to say we didn't get it right, but I don't agree with his view".
In the wide-ranging speech, Ed Miliband pledged to vote "yes" in a referendum on changing the voting system to AV, said Labour should have recognised concerns about jobs and wages resulting from immigration. He said he supported reducing the deficit but growth should be the priority.
The former energy secretary, 40, was named Labour leader on Saturday having won the ballot of MPs, party members and trade unionists by just 1%.
Since then he has been fending off criticism that he owes his leadership to the unions because his brother David got a higher percentage of votes from MPs and party members.
He got a standing ovation when, referring to the label some newspapers have given him, he said "Red Ed? Come off it," and urged a "grown-up debate" on politics.
And he warned that while he said trade unions were important, he had "no truck with overblown rhetoric about waves of irresponsible strikes" and Labour had to be careful not to alienate the public.
He said the party had to face facts about its general election defeat and go on "our own journey", show humility and learn some "painful truths" about where they had gone wrong.
"This country faces some tough choices and so do we. And we need to change," he said.
"This week we embark on the journey back to power."
'Boom and bust'
Ed Miliband praised Labour's achievements in office, saying Britain was "fairer and stronger than it was 13 years ago" but said that the party had to ask how it lost five million votes between 1997 and 2010 and "shed old thinking".
He said he understood voters' anger that Labour had not stood up to City demands for deregulation and, in what will be seen as distancing himself from his old boss Gordon Brown, "at a Labour government that claimed it could end boom and bust".
Although he is only three years younger than Prime Minister David Cameron and Deputy Prime Minister Nick Clegg, he said in ideals and values he was from a new generation.
That generation would now be running Labour with "different attitudes, different ideas, different ways of doing politics".
He attacked the prime minister for offering a "miserable, pessimistic view of what we can achieve" telling Labour members: "We are the optimists and we together we will change Britain."
The speech was welcomed by union leader Derek Simpson as one "worthy of the next prime minister". He said: "Ed demonstrated he can break free from the worst of Labour's past and present a realistic alternative to the coalition's cuts."
But Graeme Leach, chief economist at the Institute of Directors, questioned Mr Miliband's stance on new employment regulations for agency workers and minimum wage increases.
"Both measures would hurt small and large businesses, not support them. It is early days, but we detect a drift away from New Labour's efforts to talk up a pro-enterprise agenda," he said.
Just after the speech David Miliband said he thought it was "really strong": "It was the speech of a conviction politician and also a nerveless speech. His personal qualities came through."
Labour's shadow cabinet is elected by its MPs - and as nominations close at 1700 BST on Wednesday, so David Miliband must enter his name into the ballot by then if he is to stay on Labour's front bench.