DES MOINES, Jan. 3 -- Sen. Barack Obama, riding a message of hope and change and buoyed by extraordinary turnout, decisively won the Iowa Democratic caucuses Thursday night, dealing a significant setback to Sen. Hillary Rodham Clinton in the battle for the party's 2008 presidential nomination.

With all of the state's 1,781 precincts reporting, Obama (Ill.) won 38 percent of the delegates being awarded in the competition. Clinton (N.Y.) took 29.5 percent to run third behind former senator John Edwards (N.C.), who drew 29.8 percent.

Obama's victory came after the longest, costliest and most intensely fought campaign in the history of the Iowa caucuses. The year-long competition produced a huge turnout that temporarily swamped some precincts and reflected the energy and enthusiasm among Democratic voters determined to recapture the White House in November.

Party officials said turnout exceeded 239,000, far above the 124,000 who participated four years ago and eclipsing even the campaigns' most optimistic forecasts.

Obama's victory was the latest chapter in a remarkable political story. A neophyte on the national stage whose inspirational message first captured the imagination of Democrats at the party's 2004 national convention, Obama has passed the initial test against one of the most popular names in the Democratic Party.

Seeking to become the first African American president, he found a receptive audience nationally for his candidacy almost from the moment he announced last winter, and he proved his mettle in this largely white and rural state.

He addressed a raucous rally of his supporters shortly after 10 p.m. Central time, walking onstage with his wife, Michelle, and their two daughters to roaring cheers. He waved to the crowd and declared his victory "a defining moment in history."

"They said this day would never come," he said. "They said our sights were set too high. They said this country was too divided -- too disillusioned to ever come together around a common purpose." He continued, "We are one nation. We are one people. And our time for change has come." One day, he said, the American people will look back on the 2008 Iowa caucuses and say, "This is the moment when it all began."

But Obama asked Iowa for more, even as supporters filed into the downtown arena to celebrate. They were handed slips of paper reading "great work in Iowa," and announcing that three Obama offices in the state will remain open through Feb. 5, for volunteers to work phone banks aimed at primaries in other states.

Clinton spoke to supporters shortly before Obama appeared. With her husband, former president Bill Clinton, at her side, she offered congratulations to her rivals and vowed a vigorous campaign, starting in New Hampshire on Tuesday, targeting Obama's readiness to be president.

"What is most important now is that, as we go on with this contest, that we keep focused on the two big issues, that we answer correctly the questions that each of us has posed. How will we win in November 2008 by nominating a candidate that will be able to go the distance? And who will be the best president on Day One? I am ready for that contest."

Four other Democratic candidates -- New Mexico Gov. Bill Richardson, Sen. Joseph R. Biden Jr. (Del.), Sen. Christopher J. Dodd (Conn.) and Rep. Dennis J. Kucinich (Ohio) -- barely registered once the delegates were allocated. All were in the low single digits.