Iraq's first President of the post-Saddam era, the tribal leader Sheikh Ghazi Yawar, called yesterday's transfer of authority from the US-run Coalition Provisional Authority to an interim Iraqi government "a historic and happy day, a day that all Iraqis have been looking forward to". Lara Marlowe reports from Baghdad.
The transfer took place two days before it was due and in secret to prevent it being marred by extremist attacks such as those which killed more than 300 Iraqis this month.
The US administrator, Mr Paul Bremer, left the country immediately after handing a "letter of transfer" to Sheikh Yawar in the morning. The new government was sworn in 4½ hours later.
At two brief ceremonies inside US headquarters in the so-called "Green Zone" in central Baghdad, the mood was cheerful and optimistic. Rhetoric about Iraqis taking responsibility for the future, however, could not hide the irony that the Prime Minister, Mr Iyad Allawi, appointed to crush the insurgency, took office in conditions resembling a siege.
Mr Allawi has said he will enact a "Defence of Public Safety Law" giving the police and army extended powers to fight a rebellion which seems to be led by Sunni Muslims unhappy at losing power and aided by foreign Islamist fighters.
Iraqi security forces are poorly trained, understaffed, and poorly equipped. They have often refused to follow US orders, and have on occasion turned on the Americans who recruited them.
The Prime Minister emphasised the unity of Iraq, and the equality of all religions and ethnic groups in his speech to the nation. He called the men who are terrorising Iraq "the grandsons of heretics of Islam . . . transgressors".
Some of the bombers and kidnappers "already went to hellfire", he said. "Others are waiting their turn."
The new government took office as five foreign hostages, believed to be held by Abu Musab al-Zarqawi's Unification and Holy War group, are threatened with beheading. They are three Turkish contract workers, a Pakistani driver and a Lebanese-American marine named Wassef Ali Hassoun. The fact that all five are Muslims does not appear to affect the kidnappers.
Speaking at the NATO summit in Istanbul, Mr Bush called Iraq's new government "a tribute to the will of the Iraqi people, and the courage of Iraqi leaders".
Both Mr Bush and the British Prime Minister, Mr Tony Blair, his main ally in the war against Iraq, said Mr Allawi may have to take tough security measures against al-Zarqawi, the man the Americans say is behind many of the attacks on US forces, and on Iraqis working with the post-Saddam authorities.
In a sign of limited sovereignty, the US military announced earlier that it would continue to hold up to 5,000 Iraqi prisoners, closing only one of three main detention centres.
Although Mr Allawi claims Iraq will have custody of Saddam Hussein, the US Secretary of State, Mr Colin Powell, said the fallen dictator would be guarded by the US military because that was "the best way to ensure his protection and prevent a possible escape".
UN Security Council Resolution 1546, voted unanimously on June 8th, bans the interim government from taking long-term decisions.
Mr Allawi announced yesterday that parliamentary elections would be held on January 2nd, 2005. An elected government is to take office no later than December 31st, 2005.
Iraqis expressed feelings of indifference, relief, hope, anxiety and resentment over the transfer. Many believe it is a step in the right direction, although few have any illusions about Washington's continued grip on the political process.
Following yesterday's transfer of sovereignty, Iraqis are expected to fight the insurgency, while US forces gradually withdraw from the cities into desert bases, providing air support for Mr Allawi's men.
Unmanned white dirigible balloons equipped with surveillance cameras now watch Baghdad from the sky. It is, Iraqis say, the way of the future.
Kuwait, the country whose invasion by Iraq sparked the first Gulf War in 1991, has restored diplomatic ties with Iraq. "Kuwait announces the resumption of diplomatic ties with brotherly Iraq, and will later appoint an ambassador there," a Kuwaiti foreign ministry official said yesterday.
The two oil-rich countries have had no diplomatic relations since Iraq's 1990 invasion of and seven-month occupation of its tiny neighbour.