IT was around this time of year back in 2004 when Fine Gael and Labour unveiled their 'Mullingar Accord', an alliance that the two parties hoped would propel them to government in the 2007 general election. And, just before the beginning of the autumn Dáil session four years ago, then Labour leader Pat Rabbitte was guest of honour at Fine Gael's think-in – a very public demonstration of the two parties' closeness.

Such fraternal relations between the two main opposition parties seemed a long way off last week. Some Fine Gael TDs very bluntly – if not particularly convincingly – accused Labour of making eyes at Fianna Fáil after it weighed in to offer Tánaiste Mary Coughlan a pairing arrangement to allow her to travel on official business.

To say Fine Gael was smarting at Labour's impertinence is an understatement, although wiser heads in the party realise that the party's problems were entirely of its own making.

Fine Gael's cack-handed attempt to turn up the heat on the government by withdrawing pairs wasn't thought through, and it left the main opposition party badly exposed. And Labour, with the trademark ruthlessness the party has acquired since Eamon Gilmore became leader, wasn't going to miss the opportunity to appear all statesmanlike and reasonable.

As far as Labour was concerned, it was just business, but Fine Gael certainly took it personally, as the outbursts from the likes of Alan Shatter and Fergus O'Dowd showed.

The spat will quickly be forgotten. But it did demonstrate how the dynamic between Fine Gael and Labour has shifted. Fine Gael, traditionally the dominant sibling, has had to get used to its once puny kid brother, Labour, asserting itself and laying down markers to take over the family business.

Labour's shrug-of-the-shoulders reaction to Fine Gael's wounded outrage emphasised its new confidence.

"We've made absolutely no secret of our ambition. We're very comfortable with it though I'm not sure others are. What are we expected to do?" one Labour source said last week.

"Being attacked by Alan Shatter is not necessarily a bad thing," was the acerbic response of another.

As far as Labour was concerned, the decision to get involved and offer the pair to the Tánaiste was a no-brainer. "Common sense," was how one senior figure described the party's tactic last week.

Education spokesman Ruairí Quinn, who showed all his vast experience, was a central figure. Party sources say Quinn quickly identified the Enterprise Ireland-led trade mission to the US as important and determined that Coughlan needed to be on it.

"We disagreed with what Fine Gael was doing. We could do nothing or do as we felt was right and we felt we had no choice," one source said.

Party figures are scathing about Fine Gael's claim that Labour's action meant the smaller party couldn't be trusted not to go into government with Fianna Fáil. One Labour insider pointed to Fine Gael's original backing of the bank guarantee, claiming: "If our action can be described as giving Fianna Fáil a cuddle, then Fine Gael's backing of the bank guarantee scheme is consummation".

Labour's logic is simple. Labour figures say nobody in the party doubts that it will do a deal with Fine Gael after the next election and that it will be a Labour-Fine Gael government. But until then, they are different parties doing their own thing.

That said, Labour doesn't see itself having big fights with Fine Gael. Fianna Fáil, not the main opposition party, is the enemy. However, it's obvious that Labour won't be walking on eggshells around Fine Gael.

It's also abundantly clear that Labour wants the top prize of the taoiseach's job and, unlike in the past, isn't willing to settle for having a Labour tánaiste and five or six cabinet positions.

And the opinion polls show it is right not to settle. Few people in Labour believe the party would get 34% of the vote in a general election, as suggested by the most recent opinion poll. But, given that Labour is likely to be extremely transfer-friendly, anything north of 25% would put the party close to its target of 50 seats. And with Fine Gael showing no signs of making significant gains, that would put Labour in the territory to make a claim for a revolving taoiseach in any coalition with Fine Gael.

The prospect, not surprisingly, horrifies Fine Gael. The party has waited almost three decades for a general election victory and now what looked like a smooth procession to power is in danger of being driven off course by its old coalition mudguard.

Privately, Fine Gael TDs fume that Eamon Gilmore and Labour are getting away with what they believe is a blatantly populist approach, not taking any stands on any issues. There is frustration that the electorate isn't giving Fine Gael credit for being more up-front with its policies and plans. But despite this, Fine Gael figures are adamant that attacking Labour is not an option.

"Knocking lumps off each other is not the impression we want to give the public. We're going to be in government together. We need to concentrate on our opponents and that is Fianna Fáil and not Labour. If we [Fine Gael and Labour] are attacking each other, we are taking our focus away from the government," one senior figure said.

The Fine Gael TD claimed Labour couldn't resist wiping his party's eye every now and then.

"Labour always enjoy doing that. They've chips on their shoulders and that won't change. But we need to rise above it and keep our eye on the bigger prize," he said.

But there is an argument that Fine Gael needs to do more to sell its message. Senator Eoghan Harris, who once was an adviser to Fine Gael, believes the party needs to take what he calls a "blood on the shirt" decision to champion public-sector reform, even if that means alienating some public sector workers.

"The Croke Park deal has to be reopened," Harris said, arguing that the public-sector pay and pensions bill is unaffordable and that this is "where Fine Gael should be going" rather than engaging in "strokes" and then reacting angrily when Labour calls them out.

The main opposition party, he said, should be advocating strongly pro-private sector policies "on behalf of the productive sector of the economy".

Fine Gael did take a strong-line opposing the first benchmark deal shortly after Enda Kenny became leader and won kudos for the move. But it very notably backed off this approach in the run-up to the general election of 2007, with Kenny publicly endorsing the nurses' pay claim during the campaign, even though their claim was outside the national pay deal.

It was interesting, however, that Fine Gael finance spokesman Michael Noonan last week left open the possibility of revisiting the Croke Park deal.

Certainly, Fine Gael needs to find a cutting edge beyond its current saw of 'we need a general election and we need to get the government out'. Opinion polls have shown that voters agree with that sentiment, but they want more than that from the opposition.

Labour has very skilfully tapped into the general anger, particularly appealing to public-sector workers. Fine Gael can't compete with Labour for that section of the market and needs to carve out an identity of its own.

A year ago, it looked as if it simply had to avoid making any major mistakes and power would drop into its lap. Now it's clear that it needs to be a lot more proactive to ensure that it is Fine Gael, not Labour, that calls the shots after the next general election.

It would be the most painful of ironies if Fine Gael, always the number two party in the state, were finally to overtake Fianna Fáil in a general election only to find itself still in second place behind Labour.

Fianna Fáil may still be the enemy but, with friends like Labour...