Britain has handed over responsibility for security in one of Iraq's 18 provinces to local forces for the first time since the country was invaded.
The handover was signalled by a ceremony in a sports stadium
An agreement transferring power in Muthanna was signed by Major General John Cooper, who commands coalition forces in southern Iraq.
Iraqi Prime Minister Nouri al-Maliki, who was present, said the handover "will bring happiness to all Iraqis".
It ends the long-term presence of coalition troops in the province.
UK Defence Secretary Des Browne said it was a "milestone" for the people of the region and of Iraq.
"It is a proud day for the Iraqi Security Forces and the Iraqi government. They have worked hard to get here and have shown a lot of determination.
"Today takes them one step nearer to assuming full responsibility for their own security and to building a stable and democratic future for their country."
Mr Maliki said: "It is a great national day that will be registered in the history of Iraq.
"This step forward will bring happiness to all Iraqis."
The numbers involved in the handover were small - just 700 British and Australian soldiers.
However, the British and US governments hope the move will mark the beginning of a process which will eventually allow them to return the entire country to the Iraqis.
Developments in the province will be monitored by politicians in London and Washington in the anticipation that other provinces will soon be able to follow suit.
A small Australian force will continue to offer assistance.
It will also provide an "operational overwatch" from neighbouring Dih Qar.
Muthanna, a sparsely populated desert area with a population of little over half a million, was chosen as the first because it has been one of the quietest areas of the country.
Maj Gen Cooper said that, if it went smoothly, it would provide a blueprint for further handovers as control of more and more of the country was returned to the Iraqis.
"The significance of today is that it is the first province to have undergone this process. We should not overplay it but we shouldn't underplay it either," he said.