Iranians are determined to defend their homeland
Leaders across the political spectrum had called on people to turn out and demonstrate their opposition to the US following President George Bush's denunciation of Iran as part of an "axis of evil".
President Mohammad Khatami called on US leaders to "wake up and change your policy on Iran".
"The best way of fighting the pressures and threats of immature leaders is your presence here," said the reformist Mr Khatami in a traditional speech given on the huge Azadi (Freedom) Square in the west of the city.
Men, women and children marched through Tehran shouting: "Our people are awake, and hate America", and other slogans against the US and Israel.
Many people said they had come to show their anger at the American threat and their determination to defend their homeland should it be attacked.
A gold coin was offered as the prize for the best of the effigies that were paraded and then burnt at the rally, and there were some innovative slogans in English such as "Bush is Dracula".
Iran's green, white and red flags and portraits of the country's leaders decorated the capital's main thoroughfare, Enghelab (Revolution) Avenue, and an immense flag was draped over the imposing monument in the middle of Azadi Square.
In recent years the anniversary rally has become something of an occasion for a generally conservative audience to register their continuing commitment to a revolution which has lasted for 23 years now.
This time there is revitalised interest because of the high state of tension with the United States.
Appeal for unity
President Khatami told the crowd that this year's rally was particularly important because of the accusations and threats levelled at Iran.
He seemed to suggest that the US had brought the 11 September attacks upon itself.
"The American people have every right to ask their leaders how long should they pay the price for their faulty policies," he said.
"What policies and what reasons caused the 11 September attacks?" he asked.
Catalogue of violations
But the reformist movement, of which Mr Khatami is the main symbol, was far from speaking with the same voice as the conservative hardliners in a statement it issued, calling on people to attend.
It listed a long catalogue of civil rights violations attributed to the hardline judiciary.
Our correspondent says the American campaign of hostility has benefited hardliners and obliged reformists to join them in speaking out against Washington.
But below that surface, he says, the bitter rift between the two factions remains as acute as ever.