According to US officials, Iraqis have regained their sovereignty after power was transferred from the Coalition Provisional Authority to an interim Iraqi government.
They say this will pave the way for full, democratic elections by the end of 2005.
However, critics argue the ceremony was a public relations exercise during which no real power was handed over.
They say that US-led forces will continue to occupy the country and US officials will pull the strings from behind the scenes.
Paul Bremer, the top American official in Iraq since last April, announced on Monday that the occupation of the country had formally ended.
Power, the Americans argue, has now been transferred to an interim Iraqi government which was appointed by the Iraqi Governing Council - themselves appointed by the Americans.
The interim government will have the right to ask foreign troops to leave the country and will have some control over security policy. This means it could veto another Falluja-style operation.
"These leaders [in the interim Iraqi government] are going to have their eye on future elections and they'll be looking at... whether there's going to be a role for them after the interim government"
Royal Institite of International Affairs
It also has international backing after the UN security council passed a resolution on 8 June authorising the "transfer of soverignty".
The most important post in the government, the prime minister, will be held by a former exile and doctor, Iyad Allawi.
He will be assisted by a president with two deputies, who will mainly be figureheads.
The interim government is supposed to be in charge of the country until elections to a National Assembly are organised in December or in January next year.
The National Assembly will itself elect a "transitional" government which will have real lawmaking power, unlike the interim government.
After that, a new constitution will be drawn up and voted on in a referendum in late 2005. Full elections will then take place at the end of the year.
Iraqi interim prime minister Iyad Allwai hailed the transfer as "an historic day... for the Iraqi government and the Iraqi people".
Iyad Allawi hailed the transfer as
'an historic day'
He said that Iraqis would be "capable and in control of the situation and the security situation".
Richard Whitman, of London's Royal Institite of International Affairs, said the new Iraqi government would be keen to demonstrate that it is in charge.
"I think there are two things," he said. "One, clearly they want to get public order sorted out as soon as possible, but also these leaders are going to have their eye on future elections and they'll be looking at... whether there's going to be a role for them after the interim government."
However, critics say the interim government will not really be sovereign because it will not, for example, have lawmaking powers.
They point out that the government will not ask foreign troops to leave the country because those in government have supported the presence of US and other troops.
"But the main reason for this violence is the presence of foreign occupation troops. Because they have a new government and the occupation is still there, I don't think they will stop the violence. The principal problem will continue"
Al-Ahram Centre for Political and Strategic Studies
And outsiders will also control most spending since Iraq's only source of revenue - oil - will continue to be deposited in a development fund set up by the UN.
"The Iraqi people are not easily duped," said Hasan Nafaa, chairman of the political science department at Cairo University.
"As long as the Iraqi people see foreign tanks in the streets, I don't think things will change."
Mustaya al-Sayyid, a professor of political science at the university, added: "It's not really a genuine transfer, with this heavy American military and civilian presence and with a low requirement that American troops get authorisation before taking any military action."
Arabs outside Iraq, who mostly opposed the invasion of Iraq last year, suspect that Washington now wants to retain its influence over Baghdad while giving the impression that Iraqis are fully in control.
Under the new arrangements, more than 160,000 foreign troops, mostly from the United States, will stay in the country with almost total freedom to act as they wish.
Security remains the major
concern in Iraq
Analysts said Iraqi Prime Minister Iyad Allawi would not be able to stop the violence because his opponents will not see any real change, and because his security forces are not large enough or loyal enough to crush the resistance.
Diaa Rashwan, of the al-Ahram Centre for Political and Strategic Studies, said the major challenge for Allawi's government was the violence and lack of security.
"But the main reason for this violence is the presence of foreign occupation troops. Because they have a new government and the occupation is still there, I don't think they will stop the violence. The principal problem will continue."