An orderly crowd of about 6,000 people, including several hundred local and foreign journalists, gathered at Chater Gardens and outside the Legco Building, where the Democratic Party leader Martin Lee went on the balcony and gave a forthright "July 1 Declaration".
"We are proud to be Chinese, but we also want to ask why China cannot give us more freedom," Mr Lee said. "If there is no democracy, there will be no rule of law; if there is no freedom, human rights will not be respected.
"Hong Kong has been known as Pearl of the Orient. Where does its lustre come from? It comes from our freedom. Hundreds of thousands of Chinese have come to Hong Kong precisely for freedom. We want the freedom we are entitled to under the Joint Declaration."
Despite objections from the head of the provisional legislature which replaced the elected Legco when China took over sovereignty, the police kept a low-key presence and let the protesters proceed.
A series of pre-declaration activities were held yesterday evening, starting with passionate speeches by political commentators expressing their concern for democratic development in Hong Kong. There were readings, dramas and concerts.
Before the arrival of Mr Lee, veteran Democratic leader Szeto Wah delivered a "Handover Speech", reiterating the party's stance: "support sovereignty, defend democracy". He also expressed the belief that, with the support of the people, the party would be able to make a come-back next year through election.
Soon after midnight, "Flames of Democracy" were ignited by Mr Szeto and his colleagues, while an excited crowd sang patriotic songs. Later, the short-sleeved demonstrators chanted slogans such as "Long Live Democracy", unaffected by the heat, rain and thunder.
All speakers pointed out that the return of sovereignty to China not only marked the end of colonial rule, but also represented a step back against democratic development. Political commentator Ray Wong described the in-coming Chinese rulers as "authoritarian", saying that Hong Kong people were mature enough to elect their own legislature.
Another pro-democracy political party, the Frontier, put on a parade outside the Legco building. Led by journalist-turned-leader Emily Lau, several hundred protesters marched, holding candle lights and banners saying "Power to the people" and "Improve people 's livelihood, and chanting slogans such as "Down with [Premier] Li Peng" and "Down with [President] Jiang Zemin".
The Democratic Party, led by the lawyer Martin Lee, is the biggest and most popular political group in the former British colony, which won a dominant number of seats in the Legco election in 1995. But Peking refused to acknowledge the legality of the election, insisting that the political reforms introduced by the last Governor Chris Patten were against Sino- British agreements and Hong Kong's post-handover constitution. Last year, an interim body from which pro-democracy politicians were excluded, was set up.
The post-handover leader Tung Chee-hwa, who backs the provisional legislature, has said that the first Hong Kong Special Administrative Region legislature election will be held in May 1998. Despite reports that the rules might be changed to his party's disadvantage, Mr Lee vowed: "We shall return."
Despite the countless celebrations going on all over the city, the Chater Gardens and streets outside the Legco Building were packed with - mostly young - demonstrators. Local businessman Allan Chan said: "I think Hong Kong people should support the Democratic Party, because now that the British are gone, the Democrats will be the only people who can speak for us and defend our freedom. I think if the Democratic Party cannot survive under Chinese rule, then Hong Kong's future will not be promising."
Another office manager, Justin Tse, 23, said that he had voted for the Democrats in 1995 and would continue to do so in next year's election. But he did not think he would participate in future protest.
"I think after the People's Liberation Army soldiers are here, most Hong Kong people will not dare to demonstrate, for fear of being punished. At least I will not, " he said.
"This will be the last time I demonstrate with the Democrats. But I hope they will not shut up."