Direct rule from Westminster has been in place in the province since a court case over an alleged IRA spy ring in the assembly collapsed in October 2002.
Agreed in the Good Friday peace deal almost a decade ago, the Northern Irish assembly has been fraught with difficulties and has been suspended four times.
However both leaders today said they were keen to make the newest deal work.
"Today at long last we are starting along the road - I emphasise starting - that I believe will take us to lasting police in Northern Ireland," the 81-year-old Rev Paisley said at the official ceremony to mark the return of power-sharing.
He added: "We are making together a declaration. We are all aiming to create a Northern Ireland where we can all live in peace."
Mr McGuinness called the next stages of the process "the greatest, but most exciting challenge we have faced" and admitted it would be difficult.
"We know that this will not be easy and the road we are embarking on will have many twists and turns," he said. "It is, however, one we have chosen."
Speaking after the first and deputy first minister, Mr Blair paid tribute to his predecessor as prime minister, John Major, and to everyone involved in the struggle for peace but ultimately thanked the people of the province for voting for the power-sharing agreement.
"People felt that it couldn't be done, indeed some felt that it shouldn't be done, but in the end it was done. And this holds a lesson for conflicts everywhere," he said.
He concluded: "The leaders played their part but ultimately it was the people who showed their leaders….and in doing so they did the power of good for optimists everywhere."
Mr Blair is expected to step down from office soon after a decade as prime minister and Irish Taoiseach Mr Ahern was keen to thank him for what he had done in "ten tough years" working on the Northern Ireland issue.
As part of today's official restoration of devolution, DUP assembly member William Hay was named as Stormont's new speaker and will replace Eileen Bell.
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