We conduct more and more of our daily interactions over electronic media. The EC-funded project PRIME (Privacy and Identity Management for Europe) envisions that individuals will be able to interact in this information society in a secure and safe way while retaining control of their privacy. The project had set out to prove that existing privacy-enhancing technologies allow for the construction of a user-controlled identity management system that comes surprisingly close to this vision. This paper describes two key elements of the PRIME identity management systems: anonymous credentials and policy languages that fully exploit the advanced functionality offered by anonymous credentials. These two key elements enable the users to carry out transactions, e.g., over the Internet, revealing only the strictly necessary personal information. Apart from presenting for the first time these two key results, this paper also motivates the need for privacy enhancing identity management, gives concrete requirements for such a system and then describes the key principles of the PRIME identity management solution.