Pakistan's new parliament has convened for the first time since President Pervez Musharraf and his allies suffered a heavy blow in elections.
Power is to be shared by the PPP and the Muslim League
Correspondents say the stage is set for a confrontation between President Musharraf and the government.
The parties of assassinated former Prime Minister Benazir Bhutto and another former Prime Minister, Nawaz Sharif, have agreed a coalition.
More than 300 members of the National Assembly were sworn in.
The 18 February polls delivered a huge blow to President Musharraf's parliamentary allies, making his position more precarious.
The Pakistan People's Party (PPP) of the late Ms Bhutto is expected to nominate a prime minister this week as it won the most seats in the election.
The chairman of Mr Sharif's Pakistan Muslim League-Nawaz (PML-N) has confirmed to the BBC that the prime minister has been chosen from the PPP, but he declined to say who it was.
Ms Bhutto's widower, Asif Ali Zardari, is not eligible to become prime minister, but wields considerable influence in the party.
"This is the last day of dictatorship," he told reporters in the parliament building.
"This is our first step. We have conveyed a message to the world community to support democracy which defeats dictatorship."
Members said prayers for Ms Bhutto during the session, which was held amid tight security.
The BBC's Barbara Plett says the coalition agreement between the PPP and PML-N, once bitter rivals, depends on the restoration of Supreme Court judges who were sacked by the president during emergency rule in November.
Correspondents say it is believed the judges were about to declare President Musharraf ineligible for a further term, and he has pledged to fight their reinstatement.
Mr Musharraf was re-elected as president by lawmakers in October, while he was still the army chief, in an election boycotted by the opposition as unconstitutional.
The PML-N has agreed to take up posts in the cabinet, as demanded by the PPP.
Corruption cases against Asif Zardari have now been dropped
The coalition of the two parties and their smaller allies still lack the two-thirds majority required should they wish to impeach President Musharraf.
However, they command enough support to undermine his authority in parliament.
Coalition leaders have threatened to curtail the president's powers - such as his ability to dissolve the assemblies and dismiss the prime minister - though it is unclear how far they will go.
The new government's most pressing concern is likely to be an Islamist insurgency that has claimed scores of lives in bomb attacks in the last few weeks.
Nuclear-armed Pakistan has been a key US ally in the "war on terror" and Washington hopes the new government will continue to work with it.