President Bush says the early transfer of power in Iraq marks a proud day for the Iraqi people, and a day of great hope.

The president says 15 months after the liberation of Iraq and a few days ahead of schedule, the world has witnessed the arrival of a free and sovereign Iraqi government. "After decades of brutal rule by a terror regime, the Iraqi people have their country back," he said.

But Mr. Bush admits difficult times lie ahead for Iraq's new leaders. "These are strong people. They are gutsy. They are courageous. And as we say in Texas, they are stand-up guys. They will lead their people to a better day. And it is going to be very hard for them and very trying," he said.

The president said insurgents wanted to block the transfer of power and will keep up their attacks on the new government. He said Iraq can count on the friendship and support of the United States. "Our military will stay only as long as the stability of Iraq requires and only as long as their presence is needed and requested by the Iraqi government," he said.

President Bush spoke after talks with British Prime Minister Tony Blair, his strongest ally on Iraq. Mr. Blair pointed to the sacrifices made by coalition troops, Iraqi civilians, and the new Iraqi security force. He said hundreds made the ultimate sacrifice. "But they've all given their lives in the cause of trying to provide a different and better future for the people of Iraq," he said.

Speaking to reporters after their one-on-one meeting in Istanbul, the two men stressed Iraq remains in the forefront of the war on terrorism. President Bush pointed to the presence of Abu Musab al-Zarqawi, a Jordanian militant who has been linked to a number of kidnappings, beheadings and bombings in the weeks leading up to the transfer of power. He said Iraq's interim prime minister should do what it takes to confront the threat. "Prime Minister Allawi, as the head of a sovereign government, may decide he is going to have to take tough measures to deal with a brutal, cold-blooded killer," he said. "And our job is to help the Iraqis [establish] forces that are able to deal with those thugs."

The transfer of power in Iraq took place while President Bush was attending a public session of the NATO summit. U.S. Defense Secretary Donald Rumsfeld passed him a note from White House National Security Advisor Condoleezza Rice. It said Iraq is sovereign. The president was seen scribbling a few words on the bottom. They were let freedom reign.