The move marked the final stage in the US withdrawal before Panama takes full control of the zone at the end of the year.

The handover took place under a treaty signed in 1977 but its critics say it is leaving gaps in American security.

The transfer was the first attended by Panama's new president, Mireya Moscoso, who accepted two white keys from US Ambassador Simon Ferro as a symbol of the handover.

"This significant event represents another link in the chain of activities that guarantee our independence and total sovereignty," said President Moscoso, who took office on 1 September.

Front line defence

For decades, the Howard air force base at Fort Kobbe served as the front line in the United States' southern defences.

From there, Washington monitored and intercepted South American drug traffickers, delivered military support to right-wing forces in their fight against leftists throughout central America and defended the vital Panama Canal.

New guardian of the canal: President Mireya Moscoso

Washington engineered Panama's succession from Colombia almost 100 years ago. Under the original arrangement, Panama remained independent, but the canal zone belonged to the US.

But the handover of the keys marked the beginning of the end of the US presence in the Central American country.

Panama officially takes control of the zone on 31 December. For millions of Panamanians, it marks the end of US imperialism in their country.

But for a small but influential band of Republicans in Washington, it represents the opening of a breach in national security.

They argue that the alternative bases built to replace Panama's facilities cannot hope to control the flow of drugs up the central American isthmus.

'Panama unable to defend the Canal'

They also assert that the Panamanian police force can not hope to defend the waterway. There is no Panamanian army.