Across the country, Israelis held barbecues in backyards and public parks, and were entertained by naval parades and a Bible quiz. But a celebratory parachute jump over Tel Aviv injured three spectators after a parachutist crashed into a crowd.
Israel at 60 is a paradox of exuberance and despair - a country enduring near daily rocket attacks from militants while producing scientists who have pioneered Wi-Fi and instant messaging. Six decades after rising from the ashes of the Holocaust, the Jewish state is still plagued by threats from abroad and an identity crisis at home.
Its 41-year occupation of Palestinian territories has invited international condemnation. Yet Israel is a thriving democracy that has provided a haven for the world's Jews.
Independence Day is a "celebration of the possible," said Israeli author Yossi Klein Halevi. "It means taking the dream out of the realm of the ideal and into the realm of the concrete, and that in turn means living with a certain amount of disappointment."
This year's celebration was marred by a fresh criminal inquiry of Prime Minister Ehud Olmert, whose legal woes are calling his political survival into question just as he is moving to forge a peace deal with the moderate Palestinian leadership in the West Bank.
Peace talks have produced no tangible results. Palestinian Prime Minister Salam Fayyad warned Thursday that "the peace process is facing difficulties, when compared with its declared goals." President Bush wants to see a peace deal by the end of the year, but the target date appears increasingly unrealistic.
Near the northern Gaza town of Jebaliya, Israeli aircraft fired missiles at a car and men on foot in separate strikes, wounding four Palestinians, medics said. The Israeli military said the missiles targeted a rocket launching squad.
In the West Bank and Gaza, Palestinians staged events to remind the world that Israel's creation has been their "nakba," or catastrophe. Hundreds of thousands were uprooted during the 1948 war over Israel's creation, and some 4.5 million Palestinian refugees and their descendants are scattered across the region today.
In Bethlehem, some 500 marchers followed a flatbed truck carrying a huge key, meant to symbolize the hope of refugees to return one day to their villages, most of them leveled, in what is now Israel.
Israelis, meanwhile, put aside their frustration with politics for what was billed as one of the most joyous birthday celebrations since the first on May 14, 1948 - a date marked each year in Israel by the Hebrew calendar.
Independence Day began at sundown Wednesday, just as Memorial Day for fallen soldiers ended - a jarring contrast between solemnity and joy that underlined the link between the military and the existence of Israel.
During Thursday's celebrations, a parachutist accidentally landed in the crowd that had gathered on a Tel Aviv beach to watch the skydive, seriously injuring three spectators.
Jerusalem's downtown Zion Square was inundated with people Wednesday night, as revelers watched the annual fireworks display. Vendors sold inflatable and light-up toys - all emblazoned with the blue and white Star of David of the Israeli flag.
During the holiday, Israel is prohibiting Palestinians from the West Bank and Gaza from entering Israel, fearing attempts by militants to disrupt the celebrations.
