President Vladimir Putin pledged to restore Russia as a great power after being sworn in Sunday as the country's second democratically-elected president in a ceremony that evoked the country's imperial past.
Putin, a former KGB officer who has never held elected office, promised honest and efficient government, saying he wanted to restore the hopes of ordinary Russians and make the country prosperous and strong.
"Today is really an historic day. For the first time throughout the history of the Russian state, high power is being transferred in the most democratic and simple way, by the will of the people - legally and peacefully," Putin said in a brief inauguration speech.
In his first major act, Putin named Mikhail Kasyanov as prime minister. Kasyanov, who was first deputy prime minister, is the Cabinet's chief economic policymaker and Russia's negotiatior with Western creditors.
Many Russians hope that Putin, who is very popular, will be able to end years of economic and social decline, root out entrenched official corruption and restore political stability after the turbulent Yeltsin years.
Putin took the oath of office amid the ornate splendors of the Andreevsky Hall with its gilded columns and gleaming crystal chandeliers. Soldiers of the presidential guard in 19th-century black, blue and gold uniforms goose stepped, military bands blared out trumpet fanfares and cannons outside fired a 30-gun salute before Putin and ex-President Boris Yeltsin watched a military parade.
With his characteristic expressionless face, Putin walked along a red carpet to the podium, occasionally nodding to the hundreds of top officials, political leaders and other guests. The inauguration was broadcast live on Russian TV.
Mikhail Gorbachev, the last Soviet leader, looked gloomy as he stood among the crowd of dignataries watching Putin take the oath of office.
Yeltsin, who resigned December 31 after anointing Putin as his heir, is rarely seen in public these days. He looked tired and stiff, but smiled several times during the ceremony.
Putin scored an easy victory in March 26 presidential elections and has held full presidential powers since Yeltsin stepped down.
Putin, 47, an enigmatic figure who has never held elected office, faces an enormous task. The country is reeling after decades of decline, with the economy caught between the failed Soviet system and the corrupt crony capitalism of the Yeltsin years.
In his inaugural speech, Putin said he recognized the magnitude of the problems facing Russia and the population's huge expectations. He acknowledged that further democratic reforms were needed and appealed to all Russians to unite behind him.
"The road to a free society was not simple and easy. Our history had both tragic and light pages. The construction of the democratic state is far from being completed yet. But a lot has been done," he said.
Putin said he understood that many ordinary Russians desperately want better lives and he promised to work openly and honestly to ensure effective, honest government.
"We want Russia to become a free, flowering, rich and mighty and civilized country of which its citizens are proud and which is respected around the world," he said.
But Putin has given few signs of how he intends to tackle the country's problems. He has yet to outline an economic program beyond saying that he intends to continue market reforms.
And while many Russians hope that Putin will tackle corruption, the audience at the Kremlin ceremony contained many of the politicians and tycoons who have amassed wealth and power by suspect means. Yeltsin's prominence at the ceremony was likely to worry many Russians that nothing will change.
Putin has signaled that he wants to be a consensus builder and has tended to appeal to other politicians to work with him, rather than trying to strip them of power. That could be a major change from the confrontational politics of the Yeltsin era, which saw the government often stymied by infighting between rival cliques as the country's problems were ignored.
Another major challenge for Putin is Chechnya. His tough stance against Chechen rebels helped boost his popularity among Russians scared of lawlessness in and around the southern republic. But ending the war looks thorny.
Russian troops have made little progress recently. After months of refusing to negotiate, Moscow has begun floating the prospect of peace talks, but there has been no sign of real progress.
Putin says he wants to restore Russia's great power status, which threatens to further strain relations with the United States. But Russia relies heavily on foreign loans and wants foreign investment, and analysts say Putin will have to be pragmatic in dealing with the West.
Putin has made nuclear arms control a priority - because Russia cannot afford another arms race. Already he has persuaded parliament to ratify the long-delayed START II nuclear arms reduction treaty.
The move highlighted Putin's political strength, a stark contrast to Yeltsin's protracted, often futile fights with opposition lawmakers.