Iraq has taken its first step towards self-government since the fall of Saddam Hussein with the inaugural meeting of a governing council composed of Iraqi nationals.
The council contains representatives from Iraq's diverse religious and ethnic groupings
The new body, whose 25 members were chosen by the US-led coalition occupying Iraq, met amid tight security in the former Ministry for Military Industry building in Baghdad.
Its first decision was to declare a national holiday on 9 April - the day US-led forces overthrew the old regime - and to scrap holidays and festivals linked to the formerly ruling Baath Party.
The Iraqi Governing Council meeting came as the American military launched another major offensive against armed opponents of the occupation.
Later on Sunday at least one person was killed and another wounded in an explosion outside a police station in Maysaloun, a western suburb of Baghdad, Reuters news agency reported. The police station was sometimes visited by US troops.
Need for stability
Mohammed Bahr al-Uloum, a council member and prominent Shia Muslim cleric from the holy city of Najaf, read out a statement from the council as the meeting concluded.
He said its priorities were to achieve security and stability, revive the economy and deliver public services.
"The establishment of this council represents the Iraqi national will after the collapse of the dictatorial regime," he said to applause.
Sergio Vieira de Mello, the United Nations special representative in Iraq, described the day as "historic" and said it was an
important step in returning sovereignty to the Iraqi people.
"Freedom, dignity and security must from now on be taken for granted by all Iraqis," he said, adding that the UN would be "here for you in any way you wish and for as long as
The council has the power to nominate and dismiss ministers, and to direct policy - and is also expected to help draw up a new constitution paving the way for free elections.
The US-led coalition will still have the final word - but officials say the council's proposals will be rejected only in exceptional circumstances.
They say it is the most broad-based government Iraq has ever witnessed, containing representatives from Iraq's diverse religious and ethnic groupings.
American Paul Bremer, head civilian administrator, will still wield ultimate power
But critics complain that it is drawn largely from groups which were previously based outside Iraq, and that selecting rather than electing members will compromise the council's legitimacy.
The majority of council members are Shia Muslims - a marked shift for a country traditionally led by the minority Sunnis. The Kurdish, Turkmen and Assyrian Christian ethnic groups are also represented.
Among those on the panel are Ahmed Chalabi, leader of the Iraqi National Congress; Abdel-Aziz al-Hakim, a leader of the Supreme
Council for the Islamic Revolution; Massoud Barzani and Jalal Talabani, leaders of the two main Kurdish groups; and
former Foreign Minister Adnan Pachachi.
The other members are relatively unknown.
Observers say Washington hopes the now daily attacks on US troops in mainly Sunni central Iraq will decline if Iraqis feel authority is being transferred to local leaders.
As the council met, US fighter jets and helicopters patrolled the skies above Baghdad while heavily-armed US troops patrolled the area.
'Operation Ivy Serpent'
The latest major US military operation against anti-coalition elements - the fourth since the war was declared over on 1 May - was launched in towns north of Baghdad.
Codenamed Operation Ivy Serpent, it is said to have been prompted by intelligence reports suggesting that supporters of the former regime were planning attacks to coincide with the anniversaries of Saddam Hussein's ascent to the presidency on 16 July 1979 and the revolution staged by his Baath Party on 17 July 1968.
The US says pro-Saddam elements need to be rooted out
In the village of Mashahdah, 45 kilometres (27 miles) north of Baghdad, soldiers from the US 4th Infantry Division rounded up an estimated 30 local men for questioning.
The senior US civil administrator in Iraq, Paul Bremer, has warned that supporters of the former regime are regrouping to try to sabotage the American-led reconstruction programme.
Writing in the New York Times newspaper, Mr Bremer said a small minority opposed to a democratic Iraq were attacking soldiers and civilians - but they would be hunted down.
Meanwhile, in Baghdad, one Iraqi policeman was killed and four wounded when they were fired on by US troops in what appears to have been a misunderstanding.