Egyptians raised their flag over this long-disputed Red Sea resort Tuesday as an Israeli convoy pulled out, ending a territorial dispute that bedeviled the neighbors' relations for seven years.

Egyptian troops carrying rifles entered the 250-acre strip of beach in groups of three. Hundreds of Egyptian workers climbed a hill overlooking the resort, sang their national anthem and chanted "Allahu Akbar" - God is great.At the same time, a convoy of dozens of Israeli buses, police vehicles and cars left Taba along with about 50 protesting hotel workers who sang Israel's national anthem. Two Israeli patrol boats stood off the beach.

A contingent of green-bereted Israeli border police stopped to shake hands with Egyptian police before departing.

A large Israeli flag was defiantly waved from the top floor window of the 10-story Sonesta Hotel, apparently by an Israeli hotel guest, as the Egyptians raised their black, white and red flag.

The Israelis had lowered their flag during the night.

Wednesday's pullout was preceded by last-minute demonstrations by some of the Sonesta's 350 Israeli workers, who fear losing their jobs and demand that Israel guarantee the jobs or provide compensation.

During the flag-raising, hotel workers burned tires on a hill overlooking the hotel, sending up a large column of black smoke.

"We want our rights. The government is prepared to give back the land, but they can't give us up," an Israeli woman shouted at police, who had arrested several workers earlier.

Israel radio broadcast live from the scene. "From this moment, Taba is Egyptian," the announcer said.

Yitzhak Lior, deputy director general of the Israeli foreign ministry and the senior Israeli present, said "We went to court, and this was the decision. At the bottom line, we arrived at a mutual compromise without scars."

Ahmed Al Masiri, Egypt's counsel-general in the adjacent Israeli resort of Eilat, was quoted by Israel radio as saying the path to improved relations between the former adversaries was "now open."

"I hope this will be a bridge to peace, peace between the two peoples," he was quoted as saying.

However, Yossi Ahimeir, a spokesman for Prime Minister Yitzhak Shamir of Israel, said: "We are not celebrating. We are sad that we have been forced to give up Taba, never mind the reason. But we accept the decision, and we are carrying it out."

The turnover came seven years after Israel ended a staged pullout from the Sinai Peninsula.

Taba's return also comes at a time of increased pressure on Israel to yield the occupied West Bank and Gaza Strip in exchange for peace under pressure of the 15-month Palestinian uprising.