BAGHDAD (Reuters) - The U.S. military in Iraq falls under Iraqi authority on Thursday for the first time since the U.S.-led invasion ousted Saddam Hussein in 2003, a milestone in the war-weary country’s path to restoring sovereignty.

U.S. soldiers wait before going out on a mission under the "Crossed-Sabers"-- a towering 160-tonne, bronze monument of two crossed swords held in Saddam's hands, at the fortified Green Zone in Baghdad December 7, 2008. REUTERS/Erik de Castro

The U.S. force in Iraq, now more than 140,000 strong, has operated since 2003 under a U.N. Security Council resolution which expired at midnight on New Year’s Eve.

Starting January 1, troops will operate under the authority of the Iraqi government, according to a pact signed earlier this year by Washington and Baghdad.

The pact gives U.S. troops three years to leave Iraq, revokes their power to detain Iraqis without an Iraqi warrant, and subjects contractors and, in some cases, U.S. troops to Iraqi law.

The new, tough terms of the U.S. presence here were secured by an increasingly confident Prime Minister Nuri al-Maliki, emboldened by a maturing democracy, military victories against Shi’ite militias and progress against al Qaeda militants.

U.S. and Iraqi officials hold a ceremony on Thursday morning to formally hand over control of the Green Zone, the heavily fortified Baghdad compound from which the United States governed Iraq directly for more than a year after the invasion.

“The role of the coalition forces (in the Green Zone) will be secondary, centered on training Baghdad brigade troops to use equipment to detect explosives and advising Iraqi forces,” Qassim Moussawi, spokesman of Iraqi forces in Baghdad, said.

Iraqi forces take over control of the heart of U.S. power in Iraq as U.S. forces across the country prepare to operate in new concert with local troops. While U.S. soldiers remain under U.S. command, U.S. military operations are to be authorized starting Thursday by a joint U.S.-Iraqi committee.

In Baghdad, Iraq plans also to end the lucrative contracts the United States has awarded to private security contractors to guard the Green Zone, which Moussawi said would be terminated in September 2009. From then on, Iraqis alone would secure the symbolic seat of Iraq’s political power.

On Wednesday, U.S. officials finished vacating Saddam Hussein’s vast palace that was the seat of U.S. power in Iraq.

VIOLENCE DOWN

Iraqi forces take over a dramatically different Iraq from the one ravaged by sectarian violence in 2006 and 2007.

Attacks have dropped sharply, thanks partly to a troop surge ordered by President George W. Bush in 2007 and also to newfound cooperation from Sunni Arab tribal leaders.

But many Iraqis still resent what they see as a military occupation. They have bitter memories of abuses such as Abu Ghraib, the prison where images of U.S. soldiers tormenting and sexually humiliating prisoners in 2004 made world headlines.

They are also hungry for basic services, jobs, and lasting peace. Majid Mola, an engineer, dismissed as meaningless the handover billed by Maliki’s government as a major victory.

“Where are the government services? Where is the electricity? People want practical things,” he said.

In what could become one of the most enduring images of the U.S. military adventure, Iraqi journalist Muntazer al-Zaidi won applause across the Middle East when he threw his shoes at Bush and called him a “dog” at a recent news conference with Maliki.

His trial for assaulting a head of state is still pending.

Under the bilateral pact which took effect at midnight, U.S. combat forces are supposed to withdraw from Iraqi towns and cities by mid-2009 and all troops must leave by the end of 2011.

But troops may stay on longer in a support role for Iraqi forces, which have grown exponentially since 2003. While they are seen as far more skilled as they were, even senior Iraqi officials say they still need U.S. help to root out militants.

Some 15,000 prisoners held at vast U.S. military detention camps must now be charged with crimes under Iraqi law or, according to the security pact, gradually let go.