Obama assumed power over a country longing for change after former President George W. Bush's eight divisive years in the White House, an era that witnessed the September 11, 2001 terror attacks, the beginning of wars in Afghanistan and Iraq and an economic collapse not seen since the 1930s Great Depression.
"Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America _ they will be met," Obama said in his first address to the nation as its new leader.
Speaking to a massive crowd that spread across the nearly 2-mile (3-kilometer) National Mall from the Capitol toward the Lincoln Memorial, Obama recalled the words of George Washington, America's first president, and enjoined Americans against faint-heartedness ``in this winter of our hardship.'
"With hope and virtue, let us brave once more the icy currents, and endure what storms may come," the new president said in his 18 1/2-minute inaugural address. "Let it be said by our children's children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God's grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations."
Following the inauguration, Bush and his wife Laura boarded a helicopter alongside the US Capitol, as they began their journey home to Texas. The new president and his wife walked them to the chopper _ keeping with tradition _ to see them off.
Pre-inauguration polls show Americans believe Obama is on track to succeed and express confidence the new president can turn the economy around. But Obama has cautioned that recovery needs time, and that things will get worse before they get better.
As he moved on in his speech from some of the country's most difficult domestic challenges, Obama promised the world a new America that listens to all voices. But he vowed to spare nothing to keep America safe, addressing terrorist foes directly.
"We will not apologise for our way of life, nor will we waver in its defence, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you."
And to the larger Muslim world, he vowed to "seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West _ know that your people will judge you on what you can build, not what you destroy.
"To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist."
Tuesday's ceremony was the culmination of a remarkable ascent for the 47-year-old Democrat, who moves into the Oval Office as the nation's fourth youngest president. In less than five years, he rose from a little-known Illinois state lawmaker to the nation's highest office, persuading Americans that despite his relative inexperience, he could turn around the economy, end the Iraq war and restore US standing in the world.
A gifted, inspirational speaker, Obama raised the hopes of millions as he promised even before taking office to emphasise diplomacy, seek global solutions to climate change, reject torture and shut down the Guantanamo Bay prison. Acknowledging the historic nature of his inauguration as leader of a nation with a deeply troubled racial past, Obama said.
"This is the meaning of our liberty and our creed _ why men and women and children of every race and every faith can join in celebration across this magnificent Mall, and why a man whose father less than sixty years ago might not have been served at a local restaurant can now stand before you to take a most sacred oath."
The National Mall was jammed with hundreds of thousands of spectators, perhaps well above one million, who came from across American and the globe to witness the historic transfer of power. Most could only see the new president on giant television screens placed among the huge crowd.
World history teacher Calvin Adams of Arlington, Virginia, said he got up extra early so he could witness history being made firsthand and teach it to his classes.
"Eventually I'll teach American history," said Adams, 23. "I'll say, 'This is how it works because I've been there, I've seen it." The nation's 56th inauguration day began for Obama and new Vice President Joe Biden with a traditional morning worship service at St. John's Episcopal Church, across Lafayette Park from the White House.
Obama and his wife, Michelle, waved to bystanders, then entered the church to applause from about 200 people. The Rev. Luis Leon welcomed the new first couple and said every president since James Madison, the country's fourth, has worshipped at the church at least once, ``some of them kicking and screaming.' After the 45-minute service, the Obamas were welcomed to the White House for coffee. Bush and first lady Laura Bush greeted them at the North Portico, according to custom. Michelle Obama handed Laura Bush a square white box wrapped with a red ribbon.
Bush left a note for Obama in the top drawer of his desk in the Oval Office, following tradition. White House press secretary Dana Perino said the theme of the message _ which Bush wrote on Monday _ was similar to what he has said since election night: that Obama is about to begin a ``fabulous new chapter' in the United States, and that he wishes him well.
The festivities won't end until well after midnight, with dancing and partying at 10 inaugural balls. Obama's election electrified millions across the globe with the hope that the new America leader would be more inclusive and open to the needs of people and governments world-wide, more collaborative and more inclined to attack problems with diplomacy than with military power.
Obama's presidency puts Democrats firmly in charge of Washington. They will control both chambers of Congress and the White House for the first time since 1994.
Though the new president faces monumental challenges, he should face an extended honeymoon as he takes over from Bush, who leaves Washington as one of the nation's most unpopular and divisive presidents. The 43rd president's approval ratings, which soared after September 11, plummeted over his handling of the Iraq war, his slow response to Hurricane Katrina and the economic meltdown.