Hurricane Gustav made landfall Monday, slamming the heart of Louisiana's fishing and oil industry and testing New Orleans' levees with 110 mph winds before weakening to a category 1 storm.

Gustav made landfall as a category 2 storm at about 10:30 a.m., but had weakened by 3 p.m. ET to a category 1 storm. At its peak Monday, the storm had a gust of 117 mph just before 5 a.m.

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Water overtopped the Industrial Canal levee into the Upper Ninth Ward, directly opposite from the levee wall that breached and flooded the Lower Ninth Ward during Hurricane Katrina. City officials said that a barge and two ships — among them a decommissioned Navy ship — had broken free in the canal, but crews were able to tie down the barge soon after.

"We are seeing some overtopping waves," said Col. Jeff Bedey, commander of the Army Corps of Engineers' hurricane protection office. "We are cautiously optimistic and confident that we won't see catastrophic wall failure."

A railroad bridge across the Industrial Canal was in the down position, causing a 3-foot backup of water, The Times-Picayune reported. Officials said the bridge could be lifted, but cannot sustain hurricane-force winds.

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In the Upper Ninth Ward, about half the streets closest to the canal were flooded with ankle-to knee-deep water as the road dipped and rose. There were no immediate reports of damage to the canal.

Mayor Ray Nagin said the city wouldn't know until late afternoon if the vulnerable West Bank would stay dry. Worries about the level of flood protection in an area where enhancements to the levees are years from completion were a key reason Nagin was so insistent residents evacuate the city.

"There's no indication of any walls in distress," said Robert Turner, regional levee director for the Southeast Louisiana Flood Protection Authority-East. "No trenches are being cut that will destabilize the walls. No indication of walls deflecting or anything being washed out. No evidence of major seepage."

The extent of the damage in Cajun country was not immediately clear, and only one storm-related death, involving a woman killed in a car wreck, was reported in Louisiana.

"The coordination on this storm is a lot better than during Katrina," President Bush said during a storm briefing in Texas. "A lot of it had to do with the governors."

Homeland Security Secretary Michael Chertoff said search and rescue would be the top priority once the storm passed: high-water vehicles, helicopters and fixed-wing planes, Coast Guard cutters and a Navy vessel that is essentially a floating emergency room were posted around the strike zone.

Click here to read about the threat to Cajun country.

Click here to read about those who chose to stay.

Chertoff told FOX News that any storm surge would provide "both a water and wind challenge" to New Orleans.

"Certain of the levees, for example the 17th Street Canal, are now protected by a barrier," he told FOX News. "So they’re much more secure that it did three years ago, but there are for example levees in the West Bank which were not tested by Katrina, which have not been fully brought to the level that they would be in 2011, so there’s a potential vulnerability there."

While New Orleans avoided a direct hit, the storm could be devastating where it did strike. For most of the past half century, the bayou communities that thrived in the Barataria basin have watched their land literally disappear. A combination of factors — oil drilling, hurricanes, river levees, damming of rivers — have destroyed marshes and swamps that once flourished in this river delta.

Entire towns in the basin of the Mississippi delta have disappeared because of land loss. The rates of loss are among the highest in the world; erosion has left it with virtually no natural buffer.

The nation was nervously watching to see how New Orleans would weather Gustav three years after Katrina flooded 80 percent of the city. Roughly 1,600 people were killed across the unprepared Gulf Coast. Federal, state and local officials took a never-again stance after the storm, and set to work planning and upgrading infrastructure in the below sea-level city.

For all their seeming similarities, Hurricanes Gustav and Katrina were different in one critical respect: Katrina smashed the Gulf Coast with an epic storm surge that topped 27 feet, a far higher wall of water than Gustav hauled ashore.

"We don't expect the loss of life, certainly, that we saw in Katrina," Federal Emergency Management Agency Deputy Director Harvey E. Johnson told The Associated Press. "But we are expecting a lot of homes to be damaged, a lot of infrastructure to be flooded, and damaged severely."

Katrina was a bigger storm when it made landfall in August 2005, and it made a direct hit on the Mississippi coast. Gustav skirted along Louisiana's shoreline at "a more gentle angle," said National Weather Service storm surge specialist Will Shaffer.

Initial reports indicated storm surge of about 8 feet above normal tides, but forecasts indicated up to 14 feet in surge was possible.

"Right now, we feel we're not going to have a true inundation," said Karen Durham-Aguilera, director of the $15 billion project to rebuild the Army Corps of Engineers' levee and floodwalls in the New Orleans-area.

Still, Nagin urged everyone to "resist the temptation to say we're out of the woods." He said Gustav's heavy rainfall could still flood the saucer-shaped city over the next 24 hours as tropical storm-force winds blast through the city. Winds were 36 mph near City Hall on Monday morning, with higher gusts.

Nagin's emergency preparedness director, Lt. Col. Jerry Sneed, said residents might be allowed to return 24 hours after the tropical storm-force winds die down. The city would first need to assess damage and determine if any neighborhoods were unsafe.

Gusts snapped large branches from the majestic oak trees that form a canopy over New Orleans' St. Charles Avenue. More than 500,000 customers in south Louisiana were without power at midday, but officials in New Orleans said backup generators were keeping city drainage pumps in service.

On the high ground in the French Quarter, nasty winds whipped signs and the purple, green and gold Mardi Gras flags hanging from cast-iron balconies. Like the rest of the city, the Quarter's normally boisterous streets were deserted save for a police officer standing watch every few blocks and a few early morning drinkers in the city's famous bars.

"We wanted to be part of a historic event," said Benton Love, 30, stood outside Johnny White's Sports Bar with a whiskey and Diet Coke. "We knew Johnny White's would be the place to be. We'll probably switch to water about 10 o'clock, sober up, and see if we can help out."

New Orleans police superintendent Warren Riley said there had been no reports of looting or calls for rescue. The Superdome was locked up and city officials stuck to their pledge not to open a shelter of last resort. Public officials sternly warned in the days leading up to the storm that anyone leaving their homes after a dawn-to-dusk curfew was imposed would be swiftly thrown behind bars.

Evacuees watched television coverage from shelters and hotel rooms hundreds of miles away, praying the powerful Category 2 storm and its 115-mph winds would pass without the exacting Katrina's toll.

Harmonica player J.D. Hill said he was standing in line Monday morning to get into a public shelter in Bossier City in northwest Louisiana after waiting on a state-provided evacuation bus that carried him to safety.

He described a frustrating scene outside the shelter, where elderly evacuees and young children had to wait to be searched and processed before going inside.

"There's the funky bus bathrooms, people can't sleep, we're not being told anything. We're at their mercy," he said.

Hill was the first resident of the Musicians' Village, a cluster of homes Harry Connick Jr. and fellow New Orleans musician Branford Marsalis built through Habitat for Humanity after Hurricane Katrina. The village provides affordable housing for musicians and others who lost their homes in Katrina's flooding.

In coastal Mississippi, officials said a 15-foot storm surge flooded homes and inundated the only highways to coastal towns devastated by Katrina three years ago. There were no immediate reports of injuries, but officials said at least three people near the Jordan River in Hancock County had to be rescued from flood waters. Elsewhere in the state, an abandoned building in Gulfport collapsed and there were a few flooded homes in Biloxi.

Officials promised they were ready to respond to the storm, unlike Katrina. Johnson said FEMA had stockpiled enough food, water, ice and other supplies to take care of 1 million victims for three days. Also in place for rescues after the storm passes were high-water vehicles, helicopters and fixed-wing planes, plus Coast Guard cutters and a Navy vessel that is essentially a floating emergency room.

Gustav was the seventh named storm in the Atlantic hurricane season. The eighth, Tropical Storm Hanna, was strengthening about 40 miles north of the Bahamas. Though a storm's track and intensity are difficult to predict days in advance, long-term projections showed the storm could come ashore along the border of Georgia and South Carolina late in the week. The National Hurricane Center also was watching another tropical depression that formed Monday in the open Atlantic.

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FOX News' Marianne Silber and the Associated Press contributed to this report.