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By Yara Bayoumy and Peter Graff
KABUL (Reuters) - Veteran Afghan leader Hamid Karzai was sworn in as president on Thursday, pledging to fight graft and take control of his country's security before his five-year term ends, after a fraud-marred election left his image in ruins.
U.S. Secretary of State Hillary Clinton and Pakistan President Asif Ali Zardari were among dignitaries attending the ceremony in an ornate hall in Karzai's sprawling Kabul palace.
Outside, the capital was all but a ghost town, with police shutting down streets and ordering citizens to stay home.
In the south, where the Taliban-led insurgency is at its deadliest since the war began eight years ago, a suicide bomber wearing a vest packed with explosives killed 10 civilians in a crowded market and a car bomb killed two U.S. soldiers.
Karzai, 51, called for reconciliation with enemies and proposed a "loya jirga," a traditional grand assembly, which under Afghanistan's constitution can take precedence over all government institutions, including the presidency itself.
"We welcome those who are not affiliated with any terrorist organisations and whose hands are not red with Afghans' blood," he said. He described corruption as a menace to the state, and promised measures to fight it.
His inauguration for his second five-year term comes against the backdrop of an ever more-deadly Taliban insurgency, doubts over his legitimacy after the tainted election, and demands from Western donors he address rampant corruption and mismanagement.
In an apparent nod to the demands of his Western backers, Karzai pledged to appoint "competent and professional" ministers.
Publicly, Western officials mainly lauded the speech.
"The inaugural speech that President Karzai gave today set forth an agenda for change and reform. He was particularly strong on the steps that he intends to take regarding corruption," Clinton told reporters after the speech. "We think that the issue now is to ensure that it is implemented, that we see results."
British Foreign Secretary David Miliband called the speech "a very strong, substantial statement."
European Union special envoy to Afghanistan and Pakistan Ettore Sequi told Reuters: "Let's encourage and support the president and we shall have opportunities to see how that programme will be translated into reality."
In private, there was substantially more scepticism.
"We've heard all of these sentiments before. If you compare his last inauguration to this inauguration, you'll see that there's almost a 90 percent overlap in the issues that were raised," said one Western official in Kabul.
Karzai's election foe Abdullah Abdullah, who turned down a public offer of a job, called the speech "more of the same."
"He has spoken in these terms -- in terms of bringing changes and reform, and fighting corruption, and bringing security and reconciliation -- for the last eight years, and the situation has worsened," Abdullah told Reuters.
Karzai said he hoped Afghanistan's own security forces could take responsibility for the entire country within five years, and take the lead in unstable areas within three.
It is a goal he will share with his Western backers, who are seeking an exit strategy from the 8-year-old war.
"I was personally pleased to see the president set out an ambitious goal for the training of the Afghan national security forces," Clinton said. "It is a goal that he believes can be met, and we want to assist him."
U.S. President Barack Obama said on Wednesday he hopes to bring the war to an end before leaving office.
There are now nearly 110,000 foreign troops in Afghanistan, including 68,000 Americans -- more than half of whom arrived since Obama took office. Obama is now deciding whether to fulfil his commander's request for tens of thousands more.
Western officials have said they hoped to hear concrete steps in Karzai's speech that would restore his tattered reputation.
Karzai's government announced this week that it was setting up a new anti-corruption unit, but Clinton, whose visit was her first as secretary of state, said more effort was needed.
"They've done some work on that, but in our view, not nearly enough to demonstrate a seriousness of purpose to tackle corruption," she told reporters en route to Kabul on Wednesday.
A U.N.-backed probe found that nearly a third of votes for Karzai in the August 20 election were fake. While Karzai had been expected to win anyway, the extent of the fraud in his favour severely damaged his credibility at home and among Western nations with troops fighting to support his government.
He has since faced tough pressure from Western leaders to clamp down on widespread corruption and replace former guerrilla leaders and cronies with able technocrats in his new government.
For many Kabulis, the inauguration just brought more disruption after months of electoral uncertainty.
"What's happened in the last five years? It will just be the same again," said Mohammed Shah, referring to Karzai's last term, as he tried to make his way past roadblocks. "They should all go to hell. With these roadblocks, we can't even walk home."
(Additional reporting by Jonathon Burch, Hamid Shalizi and Yousuf Azimy; Editing by Paul Tait)