The relationship and conflict between a protagonist and antagonist is crucial to tell a good story. Make the antagonist too powerful, and you will end up using a Deus Ex Machina to resolve the conflict. Make the antagonist too weak, and you will end up making the story rather dull and boring.

So what are the basic principles you need to adhere to in order to make a conflict interesting to your reader?

 

Develop a good villain.

http://www.magicalwords.net/really-i-mean-it/how-to-build-a-villain-by-jim-butcher/

 

I had a huge response typed up, then realised it wasn't really answering the question. Try this:

Think of the three best stories you ever read or saw (or, at the least, the most fascinating).

Let's go with Star Wars, Lord of the Rings, and, I don't know... The Matrix.

What did the conflict between the hero and the villain have in common in each case?

While arguments can be made involving only the first installment of each of those stories that the villain was just pure evil, and the hero was just some average Joe, the eventual revelations in each provided the most important piece of information to consider - the villain was, ultimately, human.

Not in the strictest sense, of course; they were a cyborg, a Fallen Valar and a computer program. But in the end, they were all motivated and corrupted by emotion - love, hatred, fear, rage - something we can all relate to.

Basically, my feeling is that in order to have a good story, you need a balanced villain, one who acts human, and relatably. They might have access to great power beyond our comprehension, but their actions have to be ones we as an audience empathize with, or at least understand. The instant someone looks at your villain and says, "Why'd he do that?" the story is over.

likewise, the hero has to be motivated by something more than just 'doing the right thing.' Whether fear, for themselves or their friends and loved ones, or a need for purpose, or hatred of the enemy, they needa relatable reason to act. (Incidentally, this is where Star Wars and LotR is miles ahead of the Matrix - Neo supposedly acts for love, but sweet mother it takes a long time to figure that out.)

tl;dr - both your hero and villain have to be relatable, or at least understandable on a basic, human emotional level, or else no one is going to give a crap.

 

The way I like to think of it is that in order for the conflict to be interesting, there has to be some kind of emotional tension between the two. It doesn't have to start out that way, but the stories I like best are the ones where the hero and the villain mirror each other in some way; it's juiciest when they share enough similarities to empathize with each other, but try their hardest not to. That whole, 'there but for the grace of god go I' business: the hero could have easily become the villain they fight against. The Batman films, Gladiator, even Star Wars use this, and it's a big part of what makes them great.

 

Elaborating from RustyRed's point, one particular adage comes to mind when trying to make the conflict between the protagonist and antagonist interesting: "make it personal". Power can take many forms, most importantly as emotional leverage, which is perhaps something you're neglecting. When a paediatrician conducted a survey recently at her hospital ward, asking children which animated villain they feared the most after showing them a spread of Disney villains, their top answers included standards like "Maleficent" and "Demon from the Mountain". But the "Stepmother" from Cinderella (1950) also featured.

Cinderella is definitely not scary, compared to what Fantasia or Sleeping Beauty presented as children's fare, but the kids' pick of "Stepmother" makes one wonder why that is so. After all, the Stepmother is merely a spinster with no preternatural gifts, no particularly nefarious plans to conquer the world, or commit mass genocide. Then, why was she an effective villain? Because she had this unbelievable control over one person's life, this leverage which is somehow rendered as malevolent in the hands of the animators. Now, as an adult, I am not advocating that Cinderella is a horror masterpiece or anything less than trite, but children saw and observed the Stepmother's dictatorship and attempts to completely ruin the protagonist's life.

Why do we fucking care about this spinster? Because she made the conflict personal.

It's a similar reason to why Umbridge was an effective villain, despite her lack of truly criminal actions or dearth of magical prowess compared to Voldemort. She brought to Harry's life conflict which was utterly personal, controlling his very movements and ostracising him, and the reader picked up on it. Furthermore, the family-driven dramas of Hamlet and King Lear note this tool and utilise it.

Your antagonist does not necessarily have to be a family member. However, what they should be is somebody who makes the conflict very personal to your protagonist; give the clash between the protagonist and the antagonist an emotional fulcrum, whether it is through the eerie parallels between their lives, the antagonist's decision to target a protagonist's loved one, or even something as simple as ruining the protagonist's social life.

Once the conflict has an emotional core, you will find that more empirical things such as powerplays or the differences in their abilities will come much easier to you.