"Where there was devastation, there is reconstruction. There is rebirthing," pastor Jerry Snider of Lake Charles' Christian World Church said in a prayer.
The nondenominational service, featuring scriptural readings and spirited singing, was held in this city's civic center. The facility had served as a staging point for aid workers after Rita hit on Sept. 24, 2005, less than one month after Hurricane Katrina devastated the Louisiana and Mississippi coasts.
Blanco called the two storms an "unimaginable double punch" that marked "the longest year of our lives."
"As the dawn rises on this next year, I feel the warmth of progress," Blanco told the crowd.
Category 3 Rita struck along the Texas-Louisiana border, killing at least 11 people in the two states. More than 100 died in the pre-storm evacuation of Houston, in accidents and exposure deaths.
Lake Charles, a city of about 70,000, suffered wind and flood damage but its infrastructure has largely recovered. Further south, the small coastal towns of Creole, Johnson Bayou, Holly Beach and Cameron remain in splinters as residents try to rebuild.
Combined, Katrina and Rita destroyed or damaged roughly 200,000 Louisiana homes, according to Blanco's office.
Lake Charles Mayor Randy Roach praised the recovery efforts, but said all of Louisiana faces a long road back.
"We've been given the opportunity, in this state, to show what we're made of," Roach said during the service, which was attended by Donald Powell, President Bush's chief of post-hurricane Gulf recovery.
"Future generations will judge us by how we responded in the face of adversity," Roach said.
Ever since the storm hit, affected residents have complained of a phenomenon they call "Rita amnesia" — the idea that the nation, the government and the news media have fixated instead on Hurricane Katrina recovery.
The local chamber of commerce on Sunday handed out mock prescription medicine bottles, filled with candy. The label read: "For the prevention of Rita amnesia. Take as needed."