BASRA, Iraq - Britain handed over security to Iraqi forces on Sunday in the last of four provinces it once patrolled, effectively marking the end of nearly five years of British control of southern Iraq.

Thousands of Iraqi police and troops marked the handover with a parade along the palm-fringed embankment in Basra, the country's second-biggest city, in a show of Iraqi military force on a scale unseen since the days of Saddam Hussein.

They drove past in heavy tanks, armoured vehicles, pick-up trucks with mounted machine guns and police patrol cars with flashing lights. Iraqi helicopters buzzed overhead and gunboats sailed up the Shatt al-Arab waterway, which leads to the Gulf.

"Today we stand at a historic juncture and a special day, one of the greatest days in the modern history of Basra," provincial governor Mohammed Mosbah al-Waeli said at a ceremony held in the departure lounge at Basra airport, where a scaled-down British force now has its last remaining base.

Control of Basra province will be the biggest test yet of the Iraqi government's ability to keep the peace without relying on troops from either the United States or its main ally.

The province, site of Iraq's second-largest city, its only major port and nearly all its oil exports, is far wealthier and more populous than any of the other eight of Iraq's 18 provinces previously placed under formal Iraqi control.

The British commander, Major-General Graham Binns, said Iraqi security forces had "proved that they are capable".

"I came to rid Basra of its enemies but I now formally hand Basra back to its friends," said Binns, who also led the force that captured the city from Saddam's troops in 2003.

RESIDENTS OPTIMISTIC

Basra is a lively place, with restaurants open late and little of the barricaded siege mentality of the capital, Baghdad. The mainly Shi'ite south escaped the sectarian warfare that killed tens of thousands in central and northern Iraq.

But Basra has seen plenty of bloodshed in the form of turf wars between rival Shi'ite factions, criminals and smugglers. Police accuse militants of imposing strict Islamic codes and killing women for so-called "honour crimes".

A triple car bomb attack that killed about 40 people in neighbouring Maysan province last week was a reminder of the potential for violence in areas vacated by the British.

The Iraqi government says Basra's main factions agreed to a truce this month, killings in the city are down and 30,000 troops and police in the area can keep the peace.

Britain now has 4,500 troops in Iraq, less than a 10th of the force that Tony Blair dispatched to help topple Saddam in 2003. Prime Minister Gordon Brown, has said the force will shrink to 2,500 by mid-2008, including a small training mission and a rapid response team on standby.

The British were welcomed into Basra in 2003, but residents soured to them over the years. A BBC poll showed the overwhelming majority of people are glad to see the British go.

"You can see this happiness on the faces of everyone. It feels like a heavy burden has been lifted off our chests," said teacher Adel Jassem.

Still, some worry that Iraqi forces may not be up to the job: "The handover is a good step, but we hope that Iraqi forces are ready. I don't think they are fully ready and the handover should have been delayed," said merchant Faisal Sharhan, 28.

Washington has publicly backed its ally's withdrawal, even while 30,000 extra U.S. troops were sent to Iraq this year.

"For southern Iraq this is the right thing to do because it is a Shi'a-predominant portion of Iraq and I think Iraqis are better off solving the problems," said the U.S. operational commander in Iraq, Lieutenant-General Raymond Odierno.

But some have criticised the manner of the British withdrawal. The influential U.S.-based defence expert Anthony Cordesman has called it a "defeat".

Al Qaeda's second-in-command, Ayman al-Zawahri, said the handover showed that insurgents were gaining the upper hand.

"Reports from Iraq point to the increasing power of the mujahideen (holy war fighters) and the deteriorating condition of the Americans," Zawahri said in a video posted on the Internet. "And the decision of the British to flee is sufficient (proof of this)."