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Georgia's President Mikheil Saakashvili on Tuesday conceded聽defeat聽in parliamentary elections to a coalition led by a tycoon promising to ease tensions with聽Moscow, four years after the staunch U.S. ally lost a war with聽Russia.

Russian Prime Minister聽Dmitry Medvedev, who has long been openly hostile to Saakashvili, welcomed the opposition victory as opening the way for "more constructive and responsible forces" to enter the聽Georgian parliament.

Saakashvili's acceptance that his ruling party will go into opposition to聽Bidzina Ivanishvili's Georgian Dream increased the chances of the country's first peaceful transfer of power between rival parties since the聽Soviet Union聽collapsed in 1991.

Although it strengthens聽Georgia's democratic credentials, it could lead to an uneasy cohabitation between Ivanishvili, who is likely to become prime minister, and Saakashvili, who does not step down as president until next year.

Instability in the country would worry the West because it is a conduit for Caspian Sea energy supplies to聽Europe聽and has a strategic location on the聽Black Sea聽between former Soviet master聽Russia聽and Iran,听罢耻谤办别测听补苍诲听肠别苍迟谤补濒 Asia.

Tonino Picula, who led a team of international observers monitoring the vote, endorsed the conduct of the elections.

"Despite a very polarising campaign that included harsh rhetoric and shortcomings, the Georgian people have freely expressed their will at the ballot box," he said in a statement.

Medvedev, who was president and commander-in-chief when聽Georgia fought its disastrous war with聽Russia聽in 2008, expressed hopes that the result would improve the relationship between the countries.

"We can only welcome this as it probably means that more constructive and responsible forces will appear in parliament," Russian news agencies quoted him as saying.

Russia聽has had no diplomatic relations with聽Georgia since the five-day war, and both Medvedev and President聽Vladimir Putin聽have refused to have any personal contacts with Saakashvili, whom they depict as a dangerously aggressive hothead.

The agencies said Medvedev was speaking in his capacity as leader of the聽United Russia party, and Putin has yet to comment.

The U.S. State Department congratulated Saakashvili for "graciously conceding" and said it sent a good signal.

Georgian Dream supporters celebrated their victory in the capital on Monday in scenes reminiscent of the euphoria of the 2003 Rose Revolution that propelled Saakashvili to power.

Motorists were again driving through聽Tbilisi聽on Tuesday evening with flags flying and horns sounding.

Tycoon set to become premier

Defeat聽for Saakashvili's United聽National Movement聽(UNM) followed criticism that he has monopolised power, mistreated opponents and trampled on rights and freedoms. Video footage of torture, beatings and sexual assault of prison inmates, aired by opposition channels before the election, had led to protests.

"Justice has been restored," said聽Nino Kantaria, 42, in聽Tbilisi. " I believe that Bidzina will make our lives better."

But Zaira Khabuliani, another resident of the capital, said she was unsure of the opposition's ability to govern.

"I don't know how Ivanishvili will behave and what he will do for people."

Ivanishvili, a once reclusive businessman who built his $6.4 billion fortune in聽Russia, said he was confident of becoming prime minister.

Saakashvili had said Georgian Dream would move the country of 4.5 million away from the West and back into聽Moscow's orbit, suggesting Ivanishvili would do the bidding of the Kremlin.

"We'll do our best to sort out relations with聽Russia," Ivanishvili, 56, told reporters, but added: "Our main aspiration is聽Europe聽and our security is NATO."

In聽Tbilisi, two U.S. senators met Ivanishvili and congratulated the Georgian people on the election.

"We discussed at length how important the relationship is between聽Georgia and the聽United States聽of America, and we look forward to ... continuing to build that relationship," Republican Senator聽Jim Risch听辞蹿听Idaho听蝉补颈诲.

"We are good friends, we want to continue to be good friends," he said, standing beside Ivanishvili.

Governing聽Georgia could be much harder as, until Saakashvili's term ends next year, he will no longer have a compliant parliament and he will have to work with Ivanishvili.

Saakashvili accepted the will of the majority but said some of Georgian Dream's views were "fundamentally unacceptable" and saw "very deep differences" with the coalition.

Under reforms that take effect after a presidential election next year, the authority of the head of state will be weakened and more power will go to parliament and the prime minister, who will become the most powerful executive official.

Ivanishvili set out plans he would pursue as premier, saying a balanced budget would be a priority.

U.S.-educated Saakashvili curbed corruption and presided over an economic resurgence, but the war set back efforts to bring Georgia聽into NATO and gain control over the聽Moscow-backed breakaway regions of South Ossetia and Abkhazia.

The economy has grown again after contracting in 2009, hit by the war and the global economic crisis, but the official unemployment rate of 16 percent is considered to be an underestimate, and many Georgians struggle to pay bills.

"Of course, there have been problems. High utility tariffs, unemployment," said聽Alexander Begiashvili, who backed Georgian Dream. "A man lives only once and wants to have a good life."