Sean O'Grady: The next challenge is to find the policies to complete the package

What on earth do you say about a brilliant campaign that failed? Failed is relative, of course. It was not so long ago that the Liberal Democrats would have been happy to "stick on 50", losing seats in the West Country and the Home Counties, but picking up the odd seat from Labour on the Liberal Democrats' second front – rotten Labour inner-city seats. The tally suggested by the exit polls would have been regarded as a triumph just a few weeks ago.

Still, it is an undeniable disappointment. Unlike the other two parties – who must nurse their own private much larger disappointments – the Liberal Democrats cannot possibly blame the leadership. Nick Clegg, thanks to an obligation on the part of the broadcasters to give the guy a even break in the TV debates, achieved what most expected would take two elections for him to achieve, as it did for predecessors such as Jeremy Thorpe, David Steel and Paddy Ashdown, who all peaked on their second general election contest.

Instead he introduced himself to the voters, put the party's message across and the boost in the polls was obvious and immediate. The Liberal Democrats traditionally gain support during a campaign, not least because of those obligations on the broadcasters to be even handed. Vince Cable, it has to be said, prepared much of the ground in terms of persuading the electorate to take the party seriously on the central issue of the economy and fixing the public finances.

So far as they got any coverage, leading figures such as David Laws, Ed Davey and Norman Lamb also added to the party's credibility.

So it wasn't personalities, it wasn't tactics, where the party demonstrated its now customary shrewdness in targeting, and it wasn't – leastways as much as it might have been – the media who one can blame.

There was, one suspects, the usual squeeze as the party got stuck on the inevitable question about which party the Liberal Democrats might support in the – increasingly inevitable – event of a hung parliament. That issue was handled with much better poise than it ever had been in the past, but there is no winning answer to that particular dilemma. But it may well be that the party suffered because Labour-leaning voters and Tory-leaning voters both took their cues from a slightly vague pledge that the party would support whoever did best, or would not support Gordon Brown "squatting" in No 10 or whatever. On balance, those flows may have more or less cancelled themselves out. The problem, one has to conclude, and refreshing in its own way, was policy.

The difference between the decent performance that it was, and the breakthrough that Liberal Democrats thought was within their grasp, was fundamentally a question of what they might do in government, an unfamiliar feeling. Obviously enough. The amnesty for illegal immigrants, the vestigial support of the euro (just at the time when the eurozone is melting down), and some of the flakiness on the public finances were aspects of the party's platform that let it down. Political opponents and the media put the Liberal Democrat manifesto under the most excruciating scrutiny, and it was found wanting. The party's manifesto was not sufficiently stress-tested. Its policy-making procedures are evidently not sufficiently well attuned to the tastes of the electorate as they ought to be, given the party's popular appeal. Had the Liberal Democrats demonstrated the same sensitivity to the electorate as Tony Blair's New Labour did in 1997 the result might have been rather different. Focus groups have their uses.

The party, then, needs to take some comfort in the fact that it withstood the Conservative onslaught and that it managed to act as a sort of democratic brake on the prospect of an untramelled Conservative government. The public clearly did not desire such a result and Nick Clegg has enabled them to prevent such an outcome; he is a roadblock right across Downing Street for Cameron's Lexus saloon.

There is a question now about where the progressive parties of the centre-left go from here. Peter Mandelson's remark that there is a clear anti-Conservative majority across the country was more than a self-serving, slightly desperate plea for Liberal Democrat support in a hung parliament (though it was demonstrably that too); it is clearly true that the nation has not fallen in love with David Cameron, and that he is no Obama.

It is also true that the Liberal Democrats share with Labour certain traditional social democratic values. The Liberal Democrats did do spectacularly well in some parts of the country, such as the North-east, which the Labour Party criminally took for granted for decades. They also seem to have a better appeal to young people, and to disparate parts of the nation – the South Coast, the Borders, university towns – that Labour cannot reach. But the Labour Party, even at this low ebb, is not over.

The prospect of the Liberal Democrats and Labour slugging it out to reverse the dynamics of the 1920s, when Labour eclipsed the old Liberal Party would please no-one more than David Cameron.