The United States transferred sovereignty to an interim Iraqi government yesterday, formally ending the controversial 14-month occupation two days earlier than expected.

In a surprise ceremony that was finished before it was announced and before ordinary Iraqis were aware of it, Iraq's outgoing US governor Paul Bremer handed a letter to Iraqi officials sealing the transfer of powers.

“This is a historic day, a happy day, a day that all Iraqis have been looking forward to,” Iraqi President Ghazi Yawar told the ceremony.

“This is the time when we take the country back into the international community.”

Iraqi Foreign Minister, Hoshiyar Zebari, said in Istanbul the handover was brought forward to try to avert attacks by insurgents mounting a campaign of bloody attacks.

“I believe that we will challenge these terrorists, criminals, Saddamists and anti-democratic forces by bringing even the date of the handover forward,” he told reporters.

<B>Hostages crisis</B>

Although the interim government led by Prime Minister Iyad Allawi will have “full sovereignty”, according to a UN Security Council resolution on the handover earlier this month, there are important constraints on its powers.

It is barred from making long-term policy decisions and will not have control over more than 160,000 foreign troops who will remain in Iraq. The government has the right to ask them to leave – but has made clear it has no intention of doing so.

Guerrillas have mounted a series of bloody attacks this month aimed at disrupting the handover, and several foreign hostages have also been seized over the past week.

The Arabic-language satellite channel Al Jazeera broadcast footage of a blindfolded US Marine, whose captors said they would kill him unless Iraqi prisoners were released.

“A Marine assigned to the 1st Marine Expeditionary Force has been absent from his unit since June 21,” a US statement said. “However, Naval Criminal Investigative Services cannot confirm that Corporal Wassef Ali Hassoun has been taken hostage.”

Militants have already seized three Turks and a Pakistani contractor, in a new spate of kidnappings ahead of the handover.

Fighters loyal to al Qaeda ally Abu Musab al-Zarqawi said they were holding the Turks and would behead them within 72 hours unless Turks stopped working with US forces.

The threats have cast a shadow over US President George W. Bush's visit to Turkey for the NATO summit. Turkey and Pakistan are not part of the US-led occupation force in Iraq but many nationals work as drivers, cooks, cleaners and support staff for US troops.

Turkey refused to bow to the kidnappers' demands, saying it had been “fighting terrorist activity for more than 20 years”.

Zarqawi's group beheaded a South Korean hostage last week after Seoul rejected a demand to withdraw its forces from Iraq, and last month decapitated a US captive.

Zarqawi has also claimed responsibility for a series of bloody attacks, most recently a wave of suicide bombings and armed assaults in five cities on Thursday that killed more than 100 Iraqis and three US soldiers.

A C-130 transport aircraft was hit by small arms fire after takeoff from Baghdad airport. One person was wounded and later died, the US military said.

Several explosions also rang out in central Baghdad as guerrillas aimed mortars at the “Green Zone” compound housing the US-led administration's headquarters. One mortar killed two boys playing near the Tigris river, doctors said. A separate rocket attack on a US base in Baghdad killed an American soldier. At least 630 US soldiers have been killed in action in Iraq since the start of the war last year.

<I>Alistair Lyon

Lin Noueihed</I>