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Mr Mugabe's radical Zimbabwe African National Union (Patriotic Front) party or Zanu (PF) won 57 of the 80 black seats being contested in the country's first election since the end of white minority rule.
It is enough to give Mr Mugabe a comfortable majority, even when the 20 seats reserved for whites are taken into account.
He told a news conference the new government would include his former chief guerrilla rival, Joshua Nkomo, and his Patriotic Front party, which won 20 seats.
He also made clear he would consider bringing Europeans into the administration "so as to bring about a government that will be reassuring to all people of Zimbabwe".
Bishop Abel Muzorewa's United African National Council, UANC, party won only three votes - a humiliating defeat for the party which only 10 months ago was riding high in the polls.
News of Mr Mugabe's election victory was announced over radio and television sending thousands of enthusiastic black Zimbabweans onto the streets shouting for joy.
Mr Mugabe's symbol, the cockerel or jongwe, inspired his supporters to constant crowing and arm-flapping. Many ran out onto the streets with live birds.
The celebrations were largely good-natured and there were no signs of racial tensions. But overhead and at key crossroads in the capital, Salisbury, and the black townships, the security forces maintained a constant vigil.
Zimbabwe's business and farming communities have reacted to Mr Mugabe's election victory with caution. The Salisbury stock exchange fell sharply when the results were announced but recovered later in the afternoon.
Former prime minister Ian Smith told the BBC: "I think Rhodesians are pretty pragmatic and full of experience.
"I don't visualise them resorting to panic action, stampeding. I think they will act in a very mature, responsible way. After all it's our country, where will we run to?"
In a broadcast on television tonight, Mr Mugabe said: "I wish to assure you that there can never be any return to the state of armed conflict which existed before our commitment to peace and the democratic process of election under the Lancaster House agreement."
Robert Mugabe arrived in the country only six weeks before the election, after spending 10 years in exile.
The man labelled a terrorist Marxist had fought a lengthy guerrilla war against the white minority government in the capital, Salisbury, at first as part of Joshua Nkomo's Zimbabwe African People's Union and later as leader of the breakaway Zanu (PF) party.
During this time he had received help from China, Yugoslavia, Romania, Mozambique and Tanzania. The Soviet Union backed Nkomo.
One of his first problems after election was to find land to resettle displaced black people.
In March 2002, Mugabe was elected for a controversial fifth term as president amid much speculation about ballot-rigging.
As his political fortunes have declined he has resurrected land redistribution as an issue and many white farmers have been forced - often violently - to leave the land they had farmed for generations.
His biggest problem now is to revive an economy with inflation running at 120%, hundreds of thousands dependent on food aid and millions out of work.
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