New Cabinet, old rivalries: First pictures from the war room

"It was excellent really, it is like we have been working together for years," beamed Iain Duncan Smith, the new Work and Pensions Secretary as he left Downing Street.

After yesterday's bantering double act between Mr Cameron and his Lib Dem deputy Nick Clegg, the mood of good-humoured optimism appeared to have infected their colleagues at the top table.

Education Secretary Michael Gove was in equally upbeat mood. "It was great, actually," he told waiting reporters as he walked down Whitehall to his new department.

"I think we had a a really constructive meeting. I was delighted by the sense of partnership and common purpose that we had there."

He was asked if the Conservatives had finally buried the hatchet with their former enemies. "There were no hatchets to bury," came back the reply. "We had a great agreement and the Cabinet worked very well together."

To underline the point he left No 10 chatting amiably to Business Secretary Vince Cable - perhaps the Lib Dem minister least comfortable with the idea of working with the Tories.

Earlier, Mr Cable had arrived for the meeting - which lasted around about an hour and 20 minutes - in the equally unlikely company of his new Tory deputy David Willetts and Defence Secretary Liam Fox.

But despite the good humour, there were some who were keen to emphasise the need to get down to the serious business of Government.

Culture Secretary Jeremy Hunt spoke of the "very difficult challenges" ahead.

"We are all very aware of the seriousness of the situation and frankly, if we don't have a credible programme to reduce the deficit - and at the moment Britain has one of the least credible programmes amongst the developed economies - then we won't have the confidence of the world and the confidence of the country," he said.

"The encouraging thing is that I think there is an understanding across all parts of Government that we have got to take very, very difficult decisions."

Downing Street said Mr Cameron and Mr Clegg opened the meeting by stressing their commitment to work together, highlighting their strong shared agenda.

New Chancellor George Osborne then updated ministers on the economy, stressing the priorities of tackling the deficit, and demonstrating that the UK was "open for business".

He also stressed that he would be working closely with Mr Cable on banking reform - even though the two men are known to have had a difficult relationship in the past.

There were discussions on foreign policy, including the situation in Afghanistan, and the parliamentary timetable.

The meeting ended with the Cabinet agreeing to a 5% pay cut for all ministers.

Downing Street said the ministerial pay cut would be followed by a pay freeze for the rest of the Parliament.

For Mr Cameron, the cut means he will receive a ministerial salary of 142,500 - on top of his MP's pay of 64,766 - 7,500 less than the 150,000 he would have been entitled to.

The ministerial salaries for other Cabinet ministers will be cut from 141,647 to 134,565, while the pay for a junior minister in the Commons will be reduced from 94,142 to 89,435.

No 10 estimates that the reductions will save 300,000 this year and around 3 million over the lifetime of the Parliament.

Following the meeting, Mr Cameron addressed No 10 staff, remarking that he had been told his relationship with Mr Clegg was rather better than that between Tony Blair and Gordon Brown, to which he agreed, adding: "But that's not setting the bar very high."

No 10 later issued a seating plan of the meeting showing that Mr Clegg had been placed directly opposite Mr Cameron, flanked by Mr Osborne and Justice Secretary Ken Clarke.

Mr Cameron was flanked by by Foreign Secretary William Hague to the left and Cabinet Secretary Sir Gus O'Donnell to the right.

Ministers were urged by Mr Cameron and Mr Clegg to keep any differences which arise between them private.

The Prime Minister and Deputy Prime Minister will chair a new Coalition Committee specifically set up to resolve any disputes.