In a show of independence even from American liberators, two Iraqi diplomats raised the country's traditional Arab red, white and black flag Wednesday over their reopened embassy — rather than a new flag that the U.S. occupying authority had chosen.

There were broad smiles and applause from expatriate Iraqis as the country's incoming ambassador, Rend al-Rahim Francke, and Abdul-Latif Rashid, minister of irrigation and water resources, hoisted the flag under sunny skies only hours after the Iraqi authorities in Baghdad took legal custody of former President Saddam Hussein (search) and 11 of his top lieutenants.

Rather than the symbol of a new Iraq chosen by the U.S.-appointed Iraqi Governing Council (search), with a blue Islamic crescent on a white field, the flag sent fluttering in an early summer breeze is the same historic national flag that flew through the rule of Saddam until he was deposed last year in the U.S.-led war.

Stitched on the flag's white stripe in green is the Koranic verse "Allahu Akbar" (God is Great), which Saddam added after the 1991 Persian Gulf war that forced him to reverse Iraq's annexation of Kuwait.

Technically, full diplomatic relations between the United States and Iraq have not been restored, but that move is considered imminent once Rahim presents her credentials to President Bush.

Before the ceremony, President Bush offered a favorable progress report on Iraq and pledged anew that America is committed to finishing the job there despite a new wave of violence.

Bush threw his arm around former top U.S. occupation official, L. Paul Bremer III (search) — who returned to Washington this week after formally handing over power Monday — as the two men walked to the president's speech before about 150 Iraqi-Americans.

The president "talked about the progress that we have made in just 14 months in Iraq," White House spokesman Scott McClellan said. "He also firmly stated our commitment to help the Iraqi people complete the mission of a free and peaceful Iraq."

Reporters were barred from the event.

Bremer, in a round of television interviews, acknowledged that the interim new government of Iraq faces daunting obstacles in restoring security and tranquility. He said he thought that Prime Minister Iyad Illawi (search) is "a tough guy" who can do the job.

Bremer said he expects that Iraq ultimately "will certainly be a pluralistic society. It will not be an American-style democracy."

At the flag-raising ceremony, the joyful mood was vastly different from the tightlipped solemnity that the late Ambassador Nizar Hamdoon projected in the years before the United States broke relations with Iraq in 1990.

"It is a very happy day," said Raymond Jallow, an expatriate Iraqi economist who flew from his home in Los Angeles for the ceremony.

Dr. Samir Abdullah, one of 57 Iraqis who have completed a training course at the U.S. Institute of Peace and are headed to Baghdad to take jobs with the new government, said "all Iraqis are rejoicing because they have been returned their full sovereignty with the help of the United States."

Abdullah said he will work in Iraq as a military physician. Others will work in the ministries of defense, planning and justice.

Ali Qazwini, an expatriate working for a Muslim community center in Los Angeles, said, "I am very optimistic it is a turning point in our history."