The formal handover yesterday to Iraqi control of the green zone, the fortified centre of Baghdad, is a defining moment in the long and bloody struggle to bring order and stability to a country wrecked by thirty years of dictatorship and five years of internecine violence. To Iraqis, to Americans and to a sceptical Muslim world, it symbolises a welcome restoration of sovereignty, a recognition of the huge progress made in recent months and a confirmation that democracy is, at last, taking root.

At an emotional ceremony to mark the raising of the Iraqi flag over the entrance to the former palace of Saddam Hussein, Nouri al-Maliki, the Iraqi Prime Minister, declared that the day marked “the beginning of the process to retrieve every inch of our nation's soil”. He is right. And he is right to be proud. Few would have predicted even two years ago that Iraq would overcome the violent sectarian confrontations or that it had any viable future as a unitary state. According to official Health Ministry figures, 16,232 Iraqis were killed in 2007. Last year that total had dropped to 5,379 - less than a third, although still an average of nearly 15 people a day.

The comprehensive military agreement with America, ratified by the Iraqi parliament in November, does more than simply hand over control of the capital's security to the Iraqi Army. It also lays down a timetable for the US troop withdrawal, revokes their power to detain Iraqis without an Iraqi warrant, and subjects contractors and off-duty US soldiers to Iraqi law. Taken together, the measures underline that, from the beginning of this year, the 146,000-strong US force operates in Iraq under the authority of the Baghdad Government and no longer because of the 2003 invasion and subsequent occupation. This is of huge psychological importance in restoring national pride, in normalising Iraq's relationships with the US and other Western countries to whom it exports oil and in demolishing al-Qaeda's portrayal of the Iraqi Government as a puppet of Washington.

The handover of the green zone coincides with the expiry of the UN resolution, passed months after the invasion, legitimising US troops in Iraq. That applied equally to the British and the few other remaining forces. Yesterday Britain therefore also surrendered to the Iraqi Transport Ministry control of Basra airport, and a similar handover ceremony was held near to the base where the remaining 4,100 British troops await their final evacuation in July. A handful will stay on as military advisers, and a larger contingent of Americans will also continue to train and advise the Iraqi military. Indeed, the US will withdraw from its present checkpoint duties only gradually, in co-ordination with the Iraqis taking over. This makes political and operational sense.

To those who criticised the US forces' ineptitude, ignorance and naivety that marked the first years of occupation, it may be hard to admit that life has improved so noticeably thanks largely to the American readiness to learn from mistakes. Recent strategy, tactics and local understanding have gone a long way in removing grievances, winning tribal support and isolating the terrorists posing as champions of national liberation.

It is too early, however, to expect recognition or gratitude from most Iraqis. The mood was well symbolised by the journalist who threw his shoes at President Bush. Iraqis will be scarred for years by the terrorism, violence and sectarian hatred that has killed thousands and driven hundreds of thousands into exile. Most people will feel safer and happier only when the bombings cease, the electricity is constant and normal life returns to the streets. Since yesterday, however, they control all Baghdad's streets. The end of Iraq's agony is now in sight.