In a festive ceremony alongside the canal administration building, President Mireya Moscoso and U.S. Army Secretary Louis Caldera signed a document formalizing Panama's possession of the canal and a surrounding strip of land that until recently was home to U.S. military and civilian installations.
"We didn't feel sovereign with this enclave in our heart," said Candelario Rodriguez, a 61-year-old peasant from western Panama. "This has great meaning to us."
The stars and stripes didn't flutter over the ceremony; a 10-man detachment representing the U.S. Army, Air Force, Navy and Marines lowered it at sundown Thursday and presented it to U.S. Ambassador Simon Ferro. Panamanian officials said the Americans were trying to avoid embarrassment at today's event.
"It was a solemn and dignified act, as tomorrow's ceremony will also be," Ferro said.
Some Panamanians said the United States had lost yet another opportunity to commemorate the handover as a gesture not of weakness, but of respect for a smaller nation.
"Somehow, I think it would have been nobler to lower the flag at today's ceremony," said former Panamanian Foreign Minister Jorge Ritter.
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Carping in the U.S. Congress about the handover and doubts about Panama's ability to ensure the canal's security apparently convinced the Clinton administration to avoid a showy display.
Dec. 31 was the deadline for the handover of the canal and all surrounding land under treaties signed in 1977 by military strongman Gen. Omar Torrijos and President Jimmy Carter. The treaties dictated a gradual, 22-year transfer culminating in today's handover.
Thousands of jubilant Panamanians attended the ceremony and greeted with cheers the hoisting of Panama's flag over the headquarters.
Panama and the United States have had a special relationship since 1903, when the United States supported Panama's efforts to separate from Colombia.
After Panama gained independence, it signed a treaty with the United States for the construction of a canal connecting the Pacific and Atlantic oceans. The United States was given 360,000 acres along the canal, which evolved into a military and civilian enclave.
Canal officials said the waterway shouldn't be affected by Y2K problems because of he simplicity of its operation, unchanged since the first ship passed through. The operation, which is electromechanical, can be run by one man in case of an emergency, said Francisco Loaiza, head of canal technology.
Witnessing the ceremony was Cecil Haynes, 86, who has worked for the canal for 71 years. His father, James, came from Barbados and was one of the thousands of blacks from the West Indies who dug the canal with picks and shovels and left generations of new Panamanians who still speak English. Nearly 22,000 people died building the canal due to work accidents or malaria.
Haynes, an inventory management specialist who never missed a day of work, speaks proudly of "my canal."
"My father and others instilled in me that I should respect their efforts in the construction of the canal. It was built mostly with the blood, sweat and tears of blacks," he said. "I am glad we Panamanians now have the canal, and we will run it as well or better than the Americans did."