At night, the hotel bars were crammed with people celebrating the Bush victory. Amid the laughter and the toasts was triumphalism at the fact that the Democratic Party was in despair, a battered and beaten party that had lost not just the presidential election but seats in both houses of Congress. At a small gathering of senior Democratic Party officials a day before the inauguration, all the talk was of hopelessness and of the party's defeat at the hands of this most despised and divisive of presidents. The next day must have been unbearable for them, as Bush took the oath of office in the flag-draped square in front of the Capitol, his inaugural speech full of soaring rhetoric about American exceptionalism and the great mission he had set for the country to spread democracy around the world.

It must have been unbearable also when the inaugural balls got under way that night and George and Laura Bush moved from one ballroom to another to be cheered and exalted as they did a clumsy two-step to the strains of some corny American show tune. The celebrations stretched into the night and the streets were full of young men and women still high on champagne and victory, and it was hard to believe that America was at war in Iraq, that 150,000 US troops were there fighting that war and dying in ever-increasing numbers. As they celebrated, those Republican wannabes, there was a strange and puzzling disconnect between them and what was happening in Iraq. America was at war and yet most Americans were untouched, the coffins of the dead brought home in secret, the bodies buried quietly in their home towns or at Arlington National Cemetery.

Was that the President's great political achievement? Karl Rove, his political svengali, proclaimed that the Bush victory, narrow as it was - the narrowest for any second-term president - would mean that the Republicans were the natural party of government, destined to be in power for a generation or more. And the Democrats, demoralised and divided, leaderless and bitter, seemed to believe this hubristic nonsense, just as Bush believed it and the conservative evangelical base of the Republican Party believed it, the godless liberals having been crushed and consigned to the political wilderness.

Of course the Rove triumphalism was nonsense, though it is hard to say when it became clear that the war in Iraq and its aftermath had destroyed the Bush presidency, when the disconnect between the war and the lives led by most Americans had disappeared. When did it become clear that the vast majority of Americans could not wait to see the back of Bush and all the President's men and women? Perhaps it was late last October, in Lynchburg, central Virginia, a lovely southern town of graceful mansions with wide porches and white-columned verandahs surrounded by startlingly deep green manicured lawns. Lynchburg is a town of churches, a college town of 70,000 people, home of the Liberty University, the Baptist college run by the late televangelist Jerry Falwell, the fundamentalist preacher who founded the Moral Majority in 1979 and who died two weeks ago. The Moral Majority had spawned dozens of conservative Christian political activist groups that coalesced into the conservative Christian evangelical political movement in the 1980s and 1990s. This movement become the base of the Republican Party. Its standard-bearer in the 2000 presidential election was the born-again Bush, an undistinguished governor of Texas from a distinguished political family of East Coast Republican blue bloods. Bush was a sort of faux southerner who had found God in his 40s after a life characterised by listlessness.

We had come to Lynchburg for an election rally for James Webb, the Democrat candidate for the Virginia Senate seat, which the Republicans, just three months previously, did not consider at risk given that George Allen, who held it, was a hero of the religious right and their great hope for the 2008 presidential race. Most of the audience looked like they had just strolled off the lovely wooden verandahs of their imposing homes to hear what he had to say, this native son of southern Virginia, a part of America that Webb had once described with pride as redneck country.

They had come to hear this warrior from a family of warriors, this celebrated novelist and war hero whose son was serving in Iraq even though his father was bitterly opposed to the war, this man who had served as secretary of the navy during the Reagan administration, this man who had once considered himself a conservative and a Reagan protege. Over in the corner of the ballroom, dressed in his World War II army veteran's bomber jacket and cap covered in gold badges, sat 83-year-old Fitzgerald Morton, who said he no longer supported Bush because he had sent the country into a war that it did not need to fight, and because Bush had done so because he knew nothing about what war was really like. "Those fellas, Bush and Cheney and Rumsfeld, ain't never been to war," he said. "They ain't seen what I seen. Jim Webb has been to war. He's the right man for Virginia and for America. The country needs him."

Later, after Webb, an intense and quietly spoken man with fierce eyes, had arrived at the ballroom and moved rather awkwardly through the crowd, he approached Morton. The two embraced, tentatively but with genuine affection. When Webb spoke, he looked down every now and then to the battered light brown boots he was wearing with his dark suit, combat boots his son had sent him from Iraq, and then up at Morton. Webb talked about his family's warrior history, his time as a combat commander in Vietnam and then about his belief that the Iraq war was a futile and reckless exercise launched by a President who, he implied, knew nothing about war. There was a sort of electric silence in the ballroom, when everyone there, including Webb, knew that the midterm elections would be a disaster for the Republicans and that the result would signal the end of the Bush ascendancy.

A few hours later, in a shabby conference room in a motel just off the highway leading into Lynchburg, George Allen was the guest speaker at a rally organised by the Virginia Family Foundation, which was running a campaign for a change in the state constitution that would ban gay marriage. There were perhaps 150 people in the room, a gathering of "values" Republicans, evangelical Christians all, a representative group of the Republican Party's base that claimed it had delivered Bush the 2004 presidential election by garnering the conservative Christian vote in key states. At the back of the room stood a wedding cake which, after the speeches, would be shared among the faithful. Allen turned out to be everything that Webb was not: a smooth-talking baby kisser, a gladhander, all smiles and bonhomie, dressed in a smart blue suit and shiny black cowboy boots, a favourite of the Republican Party nationally, a man destined for the presidency but whose eyes were not fierce like Webb's but fearful, even as he laughed and joked, for he knew that the polls, which showed that his support was fast eroding, were probably right and that he was doomed.

He was. Webb won the seat and the hapless, hopeless Democrats of that inauguration day less than two years before won control of both houses of Congress. Bush looked like the result had aged him by a decade or more. It was as if the defeat had diminished him physically as well as politically. Many Americans had once considered him to be a straight-talking, if not intellectually brilliant, man who was into action rather than self-examination, an antidote to Bill Clinton's showy brilliance and charisma and compromised personal morality. Now most Americans wanted to see the back of Bush.

It was not just the fiasco of the Iraq war and the incompetence of the Administration's handling of the postwar occupation that was responsible for this. In November 2005, a year after Bush won re-election, I did a trip across the country - from the East Coast to the old industrial heartland in Michigan where, in Detroit, the rundown and emptying city centre was a symbol of the decline of the once mighty US car industry, and on through Kansas to Colorado and Arizona. America felt like an unhappy and pessimistic place. And there was little love for Bush, out there in the heartland where, it seemed, people were in the grip of nostalgia for a time when America was a simpler and happier place, where American values - Christian values - ruled, a time that had never existed but that George Bush had promised to re-create. This sense of a lost America was everywhere, from the small towns of Kansas where the modest timber houses along the tidy tree-lined streets had US flags flying on lovingly tended lawns and where every few houses there was a handwritten sign fixed to the front door welcoming back a son or daughter from Iraq, to Tombstone, Arizona, that legendary Wild West town near the Mexican border with its fake Wild West shopfronts and ageing fake cowboys and cowgirls wearing fake guns and playing out a western fantasy for the steadily declining number of tourists who visit in search of their childhood cowboy dreams.

Even in Colorado Springs, home of good soldiers of Focus on the Family, perhaps the most powerful Christian organisation in the country, there was disappointment with Bush, who had promised so much - an amendment to the constitution that would ban gay marriage, the promotion of a "culture of life" that would lead to an end to legal abortions, for a start - and had delivered so little. In its imposing headquarters at the base of the snow-covered Rocky Mountains, hundreds of young men and women, many of them graduates of Christian universities, were committed to the task of remaking America as a Christian republic. They were polite and welcoming of strangers - even journalists - and they had about them the aura of certainty that comes from unquestioning faith. They were pre-Enlightenment nostalgists, these young men and women, some 80 million, all of whom say they have had a personal encounter with God. They share their faith and their fears. It was Rove's great achievement to convince these people that Bush shared their faith and their fears.

America is too big and too diverse, too full of paradoxes and contradictions, for easy generalisations. But perhaps in a republic in which the pursuit of happiness was written into the Declaration of Independence, there has always been this nostalgia for a non-existent and better America. Travelling around the country, the contradictions and paradoxes were vivid and you felt, in the words of the poet and songwriter Leonard Cohen, that America really was "the cradle of the best and of the worst". The worst was there for the world to see when New Orleans drowned in the wake of Hurricane Katrina in late August 2005. The suffering of the city's poor and mostly black population - abandoned in their flooded houses, their dead floating unnamed and unrecognised in the toxic floodwaters, with thousands of people crammed into a football stadium and a convention centre without food or water; old and sick, some of them, mothers with babies and small children - was all played out in endless hours of television coverage. It horrified and shamed Americans.

And what horrified them, too, was that Bush stayed on holiday at his ranch in Texas, and the man whom he had appointed to run the national emergency organisation, a crony who had previously run a horse show, worried about the clothes he should wear in television interviews during which he displayed a sort of grumpy bewilderment about what was happening in New Orleans. It was the drowning of that city rather than the growing fiasco in Iraq that marked middle America's disillusionment with Bush. Katrina and its aftermath convinced a majority of Americans that Bush was incompetent. They concluded that an incompetent president, one who had appointed cronies totally unqualified for the jobs he had given them, was fighting a war that he had no idea how to win.

Less than a year after all those triumphal celebrations in January 2005, most Americans wanted to see the back of George Bush. A year later, when the Republicans were handed a stunning defeat in the midterm elections, the Bush era was over and so was the era of unchallenged conservative dominance of US politics. The new era, no matter who moves into the White House in January 2009, started in February when Barack Obama, a 45-year-old black senator from Illinois whose personal narrative - the son of a white woman from Kansas and a black man from Kenya - so thrills Americans who want to get beyond the country's blighted and horrifying racial history, stood in front of the old state house in Springfield and told thousands of deliriously excited supporters that he was a candidate for the Democratic Party's presidential nomination. Hillary Clinton had already announced her bid for the nomination, and if she succeeds it will be an historic victory. She is the first woman to have a real chance of becoming president. But Obama was offering something that she could not offer, for Clinton was really part of the political establishment. Obama was offering what he described as a new politics, one that buried the old politics of the baby-boomer generation, a politics of renewal and hope.

Of course, this can sound corny and cliched, so full of that special brand of American sentimentality that can be very hard to take. But Obama embodies that promise of a renewed America, and this is the secret to his appeal. He might not win the nomination, but for the next eight months or so, leading to the primaries in January, he will profoundly shape the campaign. Obama offers Americans what Reagan once described as the chance for a new "morning in America".

As for the Republicans, who could have believed even a year ago that the clear favourite for the party's nomination would be a 62-year-old former mayor of New York - that centre of liberal godlessness - with a messy private life, who favours gun control, gay rights and is pro-choice on abortion? Rudy Giuliani, in the end, may not win the Republican Party's nomination because he is unacceptable to its conservative Christian evangelical base, but the mere fact that he is favoured by so many Republican voters suggests that the political influence of those ageing Christian leaders is on the wane. In the American pursuit of happiness, change and renewal are the great constants. Americans are always on the move, from one city to another, from the north to the south and over centuries, from the east to the west, chasing dreams and opportunities. It can feel like a country full of fantasists. Is that the basis of the country's energy and its resilience?

To this observer, Washington has felt like the centre of the world, which in a sense it is, of course, a great imperial capital of the superpower that for good and ill, no matter who is in the White House in January 2009, will in large part shape the world's future. The so-called American century, which began after World War I, is far from over. Michael Gawenda's book, American Notebook (Melbourne University Publishing), will be published in early August.