Aljazeera's reporter in Falluja, Abd al-Adhim Muhammad, said triumphant shots were fired throughout the city, as drivers waved original Iraqi flags and honked their horns.
"A US convoy entered the city escorted by Iraqi security forces. The move was part of a deal struck between the city's leaders and US occupation forces last month," Muhammad said.
"People of Falluja celebrated the scene as they considered it a victory; the US forces could not violate the truce and enter the city without being escorted by an Iraqi force."
Cheering crowds took to the streets celebrating what they called a day of victory.
They were shouting Iraqi national chants such as "Iraq, we will not sell you", and "Saddam, your name shocks America".
US forces laid siege to Falluja last month after four American security contractors were killed and their bodies mutilated in the town.
Hundreds of Iraqi civilians were killed in subsequent fighting between US marines and Iraqi resistance fighters.
People in Falluja show how they
feel about the proposed new flag
Bilal Muhammad, 23, was standing with his head outside the sunroof of a BMW car, holding an AK-47 assault rifle.
"I feel like every Muslim Arab today, that we have a victory that God gave us... It will be much better than before."
Another Falluja citizen, Yusuf Musaif, who draped himself in the original Iraqi flag, said: "America is the enemy of the Falluja people."
The convoy included Major-General James Mattis, the head of the 1st Marine Division, who Aljazeera's correspondent reported met the mayor of Falluja.
For a week, marines have manned joint checkpoints with Iraqi security teams on the city's periphery, but Monday's convoy stood as a test of the calm in Falluja since the police, the Iraqi Civil Defence Corps and Falluja Brigade successfully took over responsibility last week.
The occupation forces want the Falluja Brigade and police to round up Iraqi resistance fighters' heavy weapons and arrest those behind the 31 March killings of the four American security contractors.
They also want the perpetrators of the 14 February attack on Iraqi police and Iraqi Civil Defence Corps that killed more than 20 policemen.