A capacity crowd of 35,000 and a television audience of up to two billion worldwide watched the ceremony.
Italian cross-country skier Stefania Belmondo, 36, lit the Olympic flame. Ms Belmondo, Italy's most decorated winter Olympian, won 10 medals in her career including two golds. She crowned a final torch relay around the stadium, started by Italian skiing great Alberto Tomba.
Italian President Carlo Azeglio Ciampi declared the Games open, while International Olympic Committee president Jacques Rogge urged the athletes to “inspire and motivate the future generations”.
The extravaganza, combining choreography, music and light, began with Yuri Chechi, one of Italy's greatest gymnasts, swinging a mighty hammer onto a bronze anvil. This was followed by a host of dancers, flaming skaters and music from giant alpenhorns in a homage to mountain life.
A moving ski jumper made up of hundreds of volunteers preceded the unveiling of the five Olympic rings, which served as a backdrop to the parade of about 2,500 athletes from 84 countries.
The ceremony, which also included a eulogy for peace by John Lennon's wife Yoko Ono, ended with a performance by Italian tenor Luciano Pavarotti and a spectacular firework display.
Competition gets underway on January 11 when four gold medals will be awarded in biathlon, nordic combined, women's freestyle moguls and men's speed-skating.
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