BAGHDAD (AFP-Thu Apr 7, 9:38 AM ET) - Former rebel leader Jalal Talabani took the oath of office as Iraq's first Kurdish president as the country's new government finally took shape more than two months after watershed elections.

Shiite Islamist Adel Abdel Mahdi and Sunni outgoing president Ghazi al-Yawar were sworn in as Talabani's two deputies completing a three-man presidency that was then expected to nominate a prime minister.

"We will rebuild the Iraqi government on principles of democracy, human rights... and the Islamic identity of the Iraqi government," Talabani, the country's first freely-elected president, told a special session of parliament.

The session was held in Baghdad's fortified Green Zone amid tight security. Bridges across the adjacent Tigris River were closed.

Washington and its allies have hailed what they describe as a "momentous step" in Iraq's progress towards democracy, but the first murmurs of dissent have begun to stir about the sectarian basis of the allocation of top government jobs.

The Shiite majority community, whose main political alliance took a majority of seats in January 30 election was to provide the prime minister -- Ibrahim al-Jaafari -- and one of the two vice presidents.

But for the first time in Iraq's history, a Kurd took the oath as president, a major advance for a people long-repressed under ousted dictator Saddam Hussein.

The three-man presidency was elected by MPs Wednesday after weeks of bickering between the three main communities, riven by the bitter legacy of Saddam's Sunni Arab-dominated regime which largely boycotted the elections.

The Sunnis also obtained the promise of the defence ministry among up to six cabinet posts in the government now expected to be formed within a week, even though they have just 16 MPs in the 275-member parliament.

US President George W. Bush hailed what he described as a "momentous step forward in Iraq's transition to democracy" after the election of Talabani.

"The Iraqi people have shown their commitment to democracy and we, in turn, are committed to Iraq. We look forward to working with this new government and we congratulate all Iraqis on this historic day," Bush said.

But sectarian considerations won out over purely democratic ones in the allocation of top jobs as both the majority Shiites and the second-placed Kurds strove to woo the Sunni Arab former elite away from violence and back into the political mainstream.

"The constitution will reinforce the people's reconciliation in Iraq ... without any element of discrimination," Talabani vowed in his inauguration speech.

"It (will) preserve the liberty for all, where all the citizens, whether Shiite or Sunni, will be brothers.

"We have to continue dialogue to complete a full understanding with our brothers, the Sunni Arabs -- terorrism is the major block standing in the way of stability."

In a reminder of the continuing strength of the insurgency in Sunni areas, 12 civilians were wounded by a suicide bomber in the northwestern town of Tall Afar on Thursday.

Four policemen were also wounded by a booby-trapped car in Saddam's hometown of Tikrit, security sources said.

But some Shiite leaders expressed anger at the prospect of retaining the sectarian carve-up that characterised the interim governments installed under the US-led occupation, despite the parliamentary majority the long-oppressed community won in January's elections.

Sheikh Abdul Karim al-Mahamadawi, who led Shiite resistance to Saddam's regime in the marshlands of southern Iraq in the early 1990s, paid tribute to Talabani's record as a rebel fighter but said he opposed his election simply because he was a Kurd.

"I am... against the quota system," Mahamadawi told AFP.

"This is how this next government is being formed and it looks like it will even be enshrined in the permenant constitution.

"I call it canned democracy offered by America, or even worse and more dangerous, the forbidden fruit that the devil tempted Adam with."

Even some Sunni MPs questioned the wisdom of establishing a Lebanese-style political system dominated by sectarian loyalties.

"The old wounds I think are getting deeper," said Sheikh Fawaz al-Jarba, whose second cousin Ghazi al-Yawar is the Sunni vice president-elect.

"This is a farce, everything is pre-ordained and pre-arranged before lawmakers convene," said Jarba, who, as a chief of the Shammar tribal confederation which straddles Iraq's ethnic divide, was elected as an MP for the Shiite alliance even though he is Sunni.