By Michael Stott and Oleg Shchedrov
MOSCOW (Reuters) - Dmitry Medvedev was sworn in as Russianpresident on Wednesday and just over two hours later nominatedhis predecessor Vladimir Putin as prime minister, ushering inan unprecedented period of dual rule.
Medvedev, a 42-year-old former corporate lawyer andlongtime Putin ally, stressed freedom and the rule of law inhis first remarks after taking the oath of office in a solemn,emotional ceremony in the Kremlin's glittering St Andrew'sHall.
"I believe my most important aims will be to protect civiland economic freedoms," he told guests at the inauguration,broadcast live on state television.
"We must fight for a true respect of the law and overcomelegal nihilism, which seriously hampers modern development."
Shortly afterwards, the government led by Prime MinisterViktor Zubkov followed protocol by resigning. This cleared theway for Medvedev to nominate Putin as prime minister as thecarefully choreographed transition unfolded.
The new leader, who arrived at the Kremlin alone in anarmoured black stretch Mercedes limousine flanked by 11motorcycle outriders, inherits a booming economy fuelled byhigh oil prices -- and a sobering set of challenges.
They include rampant corruption, rising inflation, afalling population, sickly industry and agriculture andincreasingly tense relations with former Soviet neighbours andthe West.
Putin has also been accused by domestic critics and Westerngovernments of trampling on human rights and limiting freedom.
Before Medvedev was sworn in, a sombre-looking Putinentered the Kremlin alone, bid farewell to the presidentialguard and thanked the Russian people for their trust over histwo four-year terms.
Barred by term limits from standing again, he encouragedhis audience to support Medvedev but told them not to deviatefrom his policies.
"It is very important for everyone to continue the coursewe have started already and which has proved right," he said.
Following the inauguration, Patriarch Alexiy II, head ofthe powerful Russian Orthodox Church, led a service in theKremlin's Cathedral of the Annunciation to bless the newpresident.
Putin named Medvedev as his preferred successor lastDecember, ensuring his overwhelming victory in the March polls.The two men have worked together since the early 1990s.
The Kremlin leader will retain major political influenceafter quitting, both in his new role as prime minister and ashead of the ruling United Russia party which controlsparliament. He remains by far Russia's most popular politician.
COMMON VIEWS
Putin has said he sees no problem working with Medvedev,with whom he says he shares common views on Russia's future.
But their double-headed government has alarmed manyRussians, who are accustomed to a single strong leader. Theyquestion how the arrangement would work in a crisis.
"Putin's opponents don't think there will be a problem butinterestingly, it's Putin's allies who are the most worriedabout what could go wrong," one Western ambassador said.
Analysts await Medvedev's first appointments for cluesabout whether he will be his own man or rely on Putin's allies.Top posts in the presidential administration and the chief ofthe FSB spy service will be particularly closely scrutinised.
Some Russia-watchers believe Medvedev's past as chief ofthe giant state gas company Gazprom and head of thepresidential administration shows he has the right stuff forthe Kremlin.
"The media are all immensely underestimating Medvedev andmaking the same mistake as they made eight years ago," saidFlorian Fenner, managing partner at UFG Asset Management whichhas $1.8 billion (920 million pounds) in Russian assets.
"The only real issue they have is inflation."
Cabinet names are expected to come after Putin's nominationas prime minister is confirmed by parliament on Thursday. Putinhas already said he may create up to eight additional deputyprime minister posts on top of the five which already exist.
The inauguration ceremony in the Grand Kremlin Palacebroadly followed the pattern set in 2000, when Putin was swornin, allowing officials to stpess continuity.
Stirring passages from Russian composers Tchaikovsky andGlinka were meshed with pomp and circumstance for the event,which was designed in the 1990s to evoke the imperial power ofRussia's past and bury memories of its drab Soviet period.
The constitution, adopted under Boris Yeltsin, gives thepresident strong powers, including the right to define Russia'sforeign and domestic policy, appoint the prime minister andother key ministers and control security and defence agencies.
The prime minister, by contrast, focuses mainly on economicand social policy.
(Additional reporting by Guy Faulconbridge; editing byKeith Weir)
