Legal documents transferring sovereignty were handed over by U.S. governor L. Paul Bremer to interim Prime Minister Iyad Allawi in a ceremony in the heavily guarded Green Zone.
"This is a historical day," Mr. Allawi said. "We feel we are capable of controlling the security situation."
Mr. Bremer will leave Iraq sometime Monday, coalition officials told the Associated Press on condition of anonymity.
"You have said, and we agreed, that you are ready for sovereignty," Mr. Bremer said in the ceremony. "I will leave Iraq confident in its future."
Iraq's foreign minister suggested earlier Monday that the transfer of sovereignty could be moved up, media reports said. Iraqi Foreign Minister Hoshyar Zebari spoke on the sidelines of a NATO summit after meeting with British Prime Minister Tony Blair.
"We will challenge these elements in Iraq, the antidemocratic elements, by even bringing the handover of sovereignty before June 30 as a sign we are ready for it," Mr. Zebari was quoted as saying.
Meanwhile, Arab television broadcast videotape Sunday of two men taken hostage by militants, one described as a U.S. Marine lured from his base and the other a Pakistani driver for an American contractor. Insurgents threatened to behead them both.
Also, militants hit a coalition transport plane with small arms fire after takeoff from Baghdad's airport, killing an American passenger and forcing the aircraft to return. Turkey rejected demands by militants threatening to behead three Turkish hostages unless Turkish companies cease business with U.S. forces in Iraq.
Death threats against hostages as well as insurgent attacks on U.S. and Iraqi security forces have accelerated as Iraq's interim government prepares to assume sovereignty Wednesday.
Turkey rejected the demands of Islamic militants who are threatening to behead three of its kidnapped citizens during a visit by President Bush to Turkey. Meanwhile, a bombing south of Baghdad killed more than 20 people.
The Arab satellite television network Al-Jazeera broadcast a videotape purportedly of a Marine taken hostage by a militant group threatening to behead him if the U.S. military did not release all prisoners in Iraq.
The tape showed a blindfolded, mustached man, and displayed a Marine identification card in the name of Wassef Ali Hassoun. Al-Jazeera said he was of Pakistani origin.
Al-Jazeera said the militants demanded the release of all Iraqis "in occupation jails" or the man would be killed. The group claimed it infiltrated a Marine outpost, lured the man outside and abducted him.
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