Hundreds of people were killed in the fighting and tens of thousands forced to flee the area of conflict.
Seyoum said: "My presence is symbolising the peace in Somalia. Mogadishu has transformed itself from anarchy to a peaceful city where the international community can open their embassies.
"I am urging the international community to send their diplomatic representatives to Mogadishu in order to boost and encourage the peace," he said at the new embassy near the presidential palace in southern Mogadishu.
Mohamed Ali Gedi, the interim Somali prime minister, said: "We are very grateful for the sacrifice made by the Ethiopians. Ethiopia is the number one friend of this country."
Some Muslim leaders in Eritrea have called on Somalis to fight against the Ethiopian troops which remain in the country, while many Somalis resent the presence of foreign forces in their country.
Seyoum said: "We have not imposed ourselves on the people of Somalia. Our army is seen as an army of liberation not as an army of occupation.
"We will leave when we will be sure that what the Somali people and Ethiopian people have achieved is made irreversible. Very difficult to express it in terms of a timeframe."
Ethiopia is the second country to re-establish a diplomatic presence in Mogadishu after the expulsion of the ICU.
Yemen opened its embassy earlier this year - in January.
Sudan and Libya are the only countries to have kept a continued, albeit intermittent, diplomatic presence in Somalia throughout the violence.
Seyoum, who arrived in Mogadishu on Friday, held talks with more than 60 political, religious and clan leaders on Saturday and urged them to unite and work for lasting peace.
Talks come ahead of a national reconciliation conference planned for June 14.