To Lie or not to lie, that is the question?

What I can never understand with these politicians is if another politician or someone close to an individual, like Lord Levy was to Blair, make a statement about what someone said, in this case Blair. How come Blair can simply make a statement saying he did not say such things?
Basically, he is calling Levy a liar. Is that it? should we then all just believe Blair's version of what was said or not said?
If he is not lying surely Blair will want to take Levy to court for libel and clear his name, or would he rather as I suspect, hope that it all blows away?

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