Blair also said US President Barack Obama’s approach to Tehran was failing during his second appearance before the inquiry.
The former premier, now Middle East peace envoy, was at his most animated when talking Friday about Iran’s influence in the region, which he condemned as “negative” and “destabilising”.
“Iraq is one part of a far bigger picture and right across that region, people are facing that struggle,” he said.
“This is a looming and coming challenge,” he said. “At some point, we’ve got to get our head out of the sand.
“The West has got to get out of this wretched posture of apology for believing we are causing what these Iranians are doing, or what these extremists are doing. We are not.”
He said Obama’s appeal to Iran in his 2009 Cairo speech had got nowhere.
“They carry on with the terrorism, they carry on with the destabilisation, they carry on with the nuclear weapons,” he said.
“They’ll carry on doing it unless they are met by the requisite determination and if necessary, force.”
An emotional Blair addressed the condemnation he faced following his first hearing last January when he said he had “no regret” about removing Iraqi dictator Saddam Hussein.
“That was taken as my meaning that I had no regrets about the loss of life and that was never my meaning or my intention,” he said.
“I wanted to make that clear that of course I regret deeply and profoundly the loss of life, whether from our own armed forces, those of other nations, the civilians who helped people in Iraq or the Iraqis themselves.”
His words sparked an angry response from the packed public gallery, where relatives of some of the 179 British soldiers killed in Iraq were sitting.
“Your lies killed my son, I hope you can live with yourself,” shouted Rose Gentle, whose 19-year-old son Gordon was killed in 2006 while serving in Basra, as Blair left the hearing.
Outside the central London venue, dozens of anti-war demonstrators protested.
The inquiry, aimed at learning lessons from the Iraq war, was launched after the withdrawal of British troops from the country in July 2009. Blair, who was prime minister from 1997 to 2007, has been its star witness.
Newspapers were split on Saturday over Blair’s decision to go to war.
“Nothing divides Britain more than our part in the war against the evil regime of Saddam Hussein,” said The Sun.
The tabloid thought Blair had “argued a convincing case for taking action against one of the vilest regimes the world has ever seen”, adding that “extremism cannot be ‘managed’.”
The Daily Telegraph said Blair was far better informed on the Tehran regime than on Saddam’s and “like him or not… he is right about Iran”.
The Guardian said “the old stager belted out familiar tunes”, adding: “Blair ties the planet together in a superstring theory of everything, and nothing is allowed to stand in the way of its conclusions.”
The Daily Mail said it was “a predictably polished, slippery” performance from a man who “lied, cheated and manipulated” to take Britain into war, adding: “His actions stain the national conscience.” – Yahoo News