U.S. Secretary of Defense Leon Panetta says the dream of an independent and sovereign Iraq is now a reality, as the United States marked the end of its military mission in Iraq.

Panetta spoke Thursday at a ceremony in Baghdad, calling it a “historic occasion” for both the Iraqi and American people.

It comes weeks ahead of a December 31 deadline for the remaining U.S. soldiers to withdraw from Iraq. There were about 4,000 U.S. troops remaining in Iraq Thursday, down from as many as 170,000 at the height of the war.

Panetta said those soldiers will leave Iraq knowing they helped the Iraqi people begin a new chapter in their history that is “free from tyranny” and full of hope for prosperity and peace.

He noted that a “great deal of blood has been spilled” by both Americans and Iraqis.

Nearly 4,500 U.S. troops and tens of thousands of Iraqis have been killed since the war began in March 2003.

Panetta said Iraq is now responsible for directing its own future, but that the U.S. will remain a partner with a “significant” diplomatic presence in Iraq.

The United States formally ended combat operations in Iraq in August of last year, and U.S. troops have been advising and assisting Iraqi forces as they assumed full responsibility for protecting their country.

U.S. officials had asked for about 3,000 U.S. troops to stay in Iraq, but the Iraqi government was not able to push any agreement on immunity through parliament. The failure to agree on an immunity deal also led NATO to permanently shut down its mission in Iraq at the end of the month.

Former U.S. president George W. Bush ordered the invasion of Iraq in 2003 citing reports that the country had weapons of mass destruction. No such weapons were ever found.

On Wednesday, U.S. President Barack Obama paid tribute to those who served in the war, and said the United States is leaving behind a sovereign, stable and self-reliant Iraq. He described that as an “extraordinary achievement” as he spoke at the Fort Bragg military base in North Carolina.

Mr. Obama said the future of Iraq is now in the hands of the Iraqi people.

In Iraq Wednesday, hundreds of people in the city of Fallujah took to the streets to celebrate the withdrawal of U.S. troops from their country. They shouted slogans and held banners, and some burned U.S. and Israeli flags. Fallujah, to the west of Baghdad, was once a center of insurgency against U.S. forces.

On Monday, Mr. Obama and Iraqi Prime Minister Nouri al-Maliki outlined a broad agenda for post-war cooperation, pledging to ensure Iraq's political stability and strengthen its national security.

The White House says it believes Iraq is ready to handle its own security, and that while there will be violence, it has been diminishing as key figures resolve differences democratically.