As Karzai vowed to make the country safe from an increasingly violent Taliban insurgency, two U.S. service members died in a bomb attack and a suicide bomber killed 10 civilians in the south. But his speech appeared to make strides toward appeasing the international allies he needs to fend off the Islamist militants.
U.S. Secretary of State Hillary Rodham Clinton said Karzai's comments about battling corruption provide a "very strong base on which to measure the actions taken."
"He could have been very vague and talked about how we're all against it and all want to end it, but he was much more specific, and we're going to, along with the people of Afghanistan, watch very carefully to see how that's implemented," said Clinton, who attended Karzai's inauguration.
But she said setbacks are inevitable.
"We are under no illusions about the difficulties of this mission," Clinton said.
The two U.S. service members were killed by a suicide car bomber who detonated his explosives near the gate of a NATO base, said Jilani Farahe, deputy chief of police for Zabul province.
The 10 civilians died when a suicide bomber targeting an Afghan security forces convoy blew himself up in a busy market before reaching the convoy, said the deputy police chief of Uruzgan province, Gulad Khan.
Three of the dead were boys aged between 12 and 14 who were selling shopping bags in the market, Khan said. Thirteen others were wounded. Interior Ministry spokesman Zemeri Bashary confirmed the attack.
In his speech, Karzai also said he wanted private Afghan and foreign security companies to stop operating in the country within two years.
"We are determined that by the next five years, the Afghan forces are capable of taking the lead in ensuring security and stability across the country," with foreign troops only responsible for support and training, he said.
Karzai also said nobody was above the law and promised to go after corrupt officials.
His government, he said, "is committed to end the culture of impunity and violation of law and bring to justice those involved in spreading corruption and abuse of public property."
He promised to pass a law requiring that all senior officials - including deputy ministers and provincial governors - declare and register their assets. The legislation would broaden a constitutional provision that already requires such declarations for those of ministerial rank and higher.
Karzai won this year's fraud-marred presidential election after his main rival, Abdullah Abdullah, pulled out of a runoff, saying it was impossible for the vote to be fair.
But Karzai sought to portray himself as a unifying force and invited those who ran in the election to work together for the benefit of the country.
"I would like to invite all the presidential candidates, including my brother Dr. Abdullah Abdullah, to come together to achieve the important task of national unity, and make our common home, Afghanistan, proud and prosperous," he said. He stopped short, however, of inviting him into his government.
But Abdullah, who served as Karzai's foreign minister for several years, said it was Karzai's administration that had created the problems.
"His record and policies I consider as the basic and fundamental reason for the failures of the international community and Afghanistan together," Abdullah told the AP. "So for me it's those agendas for change which are important rather than my having posts in the Cabinet, that has never been my agenda."
Karzai said a loya jirga, or traditional council of elders, would be called to address the insurgency, but did not set a timeframe.
"We will utilize all national and international resources to put an end to war and fratricide," he said.
Karzai, who has often bristled at the criticism leveled at him from Western powers, said his government was doing whatever it could to implement reforms.
He said a conference would be held soon in Kabul to address ways to tackle corruption, and that his government would take its fight against drug trafficking seriously.
The president insisted he would select "expert ministers" capable of providing competent leadership.
Karzai was sworn in to a second five-year term by the head of the Supreme Court during a ceremony attended by hundreds of Afghan and foreign dignitaries from more than 40 countries, including Clinton, Pakistan President Asif Ali Zardari and British Foreign Minister David Miliband. Heavily armed soldiers stood beside armored personnel carriers at the gate to the palace.
Karzai said Zardari's presence at his inauguration was a sign of "good relationship, good brotherhood." Traditionally rocky relations between Pakistan and Afghanistan, which share a 1,510-mile (2,430-kilometer) -long border, have improved steadily since Zardari's elected government replaced the military dictatorship of Gen. Pervez Musharraf.
Some saw Karzai's speech as an indication that he was serious about tackling graft.
"It was a renewed commitment to curb corruption and appoint competent people. I think that was good," said Abdul Qadeer Fitrat, governor of the Afghanistan State Bank.
The Taliban, however, said the inauguration ceremony was meaningless and that they would not accept his call for national unity.
"Today is not a historic day. This is a government based on nothing because of the continuing presence of foreign troops in Afghanistan," spokesman Zabiullah Mujahid told The Associated Press in a telephone call.
"Karzai's call to the Taliban to come to the government has no meaning. He became president through fraud and lies," Mujahid said.
The head of Afghanistan's human rights commission said the speech struck the right tone of reform but that the Karzai government would not be able to succeed without the help of its international allies.
"The speech was good because he said we need action," said Sima Samar. "He can deliver if there is a political will - but not just on his part, also on the part of the international community."
Others were hopeful, if somewhat skeptical.
"President Karzai has not done too well in the past four years. I hope he can perform better in the future," Sher Mohamad, a taxi driver, said as he passed through a police and army checkpoint. "In this country if you want a good job you have to pay a bribe to get it. Maybe he can stop that."
Associated Press writers Deb Riechmann, Elena Becatoros, Amir Shah and Heidi Vogt in Kabul and Denis Gray in Logar contributed to this report.