Faltering slightly at first, a lone voice sang The Star-Spangled Banner as a large American flag was hoisted to mark the offical opening of the new US Embassy inside Baghdad’s green zone today.

Ryan Crocker, the US Ambassador to Iraq, told a ceremony in the grounds of the sprawling compound, the biggest American embassy in the world, that this was the start of a new era in relations between the two countries.

The move followed the similarly symbolic handover on New Year’s Day of Saddam Hussein’s old presidential palace, which had served as the US Embassy since the invasion, to the Iraqi Government.

“Today is about more than raising a flag and dedicating an embassy. It is about new directions and a new future,” Mr Crocker told an audience of diplomats, officials and military personnel.

As he spoke, the sound of helicopters buzzed overhead, a reminder of the ongoing US military presence in Iraq despite the shift in power. All US forces in the country came under the authority of the Iraqi Government on January 1 after a UN Security Council resolution authorising their presence expired.

Under a new agreement between Baghdad and Washington, US troops will pull out of towns and cities by mid-2009 and out of the country within three years.

Raffie al-Issawi, one of Iraq’s two Deputy Prime Ministers, said that the establishment of a fully-fledged American embassy in a sovereign Iraq “means really a new era of excellent relations”.

Speaking to The Times after the ceremony, he added: “I feel that now everything is done an Iraqi way with the assistance of the Americans and others. I hope that it will be a prosperous and excellent future for my country and my people.”

The upbeat statements contrast with the violent reality on the ground. Attacks are down significantly from a year ago, but bombings still occur on a near-daily basis.

Four people were killed today and another 19 were injured in four bombs across Baghdad. The attacks came 24 hours after at least 35 people died and scores more were wounded when a female suicide bomber targeted Shia pilgrims at a revered shrine in the northeast of the capital.

Security at the Embassy was typically tight for the ceremony. Also speaking was John Negroponte, Deputy Secretary of State, on a visit from Washington. He served as the first US ambassador to Iraq after the 2003 invasion.

In addition Jalal Talabani, Iraq’s Kurdish President, said a few words to the several hundred assembled guests, who included Christopher Prentice, the British Ambassador to Iraq and Lieutenant-General John Cooper, the most senior British military commander in the country.

After the speeches, people filed under a large, white marquee for a finger buffet and coffee.

Spread across 104 acres, the embassy compound of orange-y buildings cost more than $700 million to build. Surrounded by high walls of reinforced concrete, some people joke that it looks more like a prison from the outside.

The Embassy, which holds some 1,200 people, has been functioning for several weeks now after diplomats and other staff gradually relocated from the Republican Palace, elsewhere in the green zone.

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