above its weight in recent years and has become a key player in Arab Spring uprisings.
Qatar's Emir Sheikh Hamad bin Khalifa al-Thani (front R) stands next to his son Sheikh Tamim bin Hamad al-Thani (front L). The Emir said on June 25 that he was stepping down and handing power over to his son Sheikh Tamim. Reuters
"I announce handing the rule over to Sheikh Tamim bin Hamad al-Thani," the emir said in a televised speech.
The decision marks the "beginning of a new era in which a young leadership will hold the banner", he added.
After the speech, Al-Jazeera television aired footage of citizens arriving at the palace in Doha to swear allegiance to Tamim, who stood next to his father to welcome the visitors.
Sheikh Hamad, who used Qatar's immense gas wealth to drive its modernisation, came to power in a coup in which he overthrew his own father Sheikh Khalifa in June 1995.
His decision to abdicate sees Tamim propelled into the youngest sovereign of any of the Gulf Arab monarchies.
The occasion was marked by the declaration of Tuesday as a public holiday.
"Such a generational shift will make waves in the region, even though the Qataris informed other countries of their decision," said Doha-based analyst Salman Shaikh.
"This decision is consistent with Qatar's policy," he told AFP. "They have been preparing for change for some time, they want to move to the younger generation."
A diplomat said that by freely stepping down the emir would "score a first in the Arab world," where autocratic rulers held power uncontested for decades until the Arab Spring revolutions that toppled regimes in Tunisia, Egypt and Libya.
Tamim, born in 1980, is the second son of the emir and his second wife Sheikha Mozah and has been groomed for years to take the helm of the super-rich Western ally.
The British-educated Tamim is deputy commander of the armed forces and head of the National Olympic Committee. He also chairs the Qatar 2022 Supreme Committee in charge of hosting the 2022 FIFA World Cup.
Diplomats said that over the past three years the emir has increasingly transferred military and security responsibilities to Tamim, who like his father went to the British military academy Sandhurst.
He also went to Sherborne school in Dorset.
The emir has developed Qatar into a political and economic powerhouse with multi-billion-dollar investments across the world.
The tiny Gulf peninsula holds the world's third largest gas reserves and produces roughly 77 million tonnes of liquefied natural gas per year, making it the world's largest supplier.
Its population of 1.87 million, less than 250,000 of them citizens, has seen its per capita income shoot up to $86,440 a year.
Analyst Neil Partrick, an expert on the Gulf, ruled out major changes in Qatar.
"Tamim already has responsibilities for sensitive foreign portfolios among other matters," said Partrick.
"For Qatari foreign policy, none of this seems likely to produce major change. The young heir apparent Tamim is unlikely to effect major changes without consulting his father."
Qatar took part in the armed intervention in Libya and actively supports rebels trying to topple Syrian President Bashar al-Assad's regime.
Under Hamad's rule, the Qatar Investment Authority, the emirate's sovereign wealth fund, invested billions of dollars in businesses ranging from Germany's Volkswagen to French energy giant Total and Britain's Sainsbury's supermarket chain and Barclays Bank.
The Gulf state also developed a powerful media empire through Al-Jazeera, the first pan-Arab satellite channel which also broadcasts in English, and is preparing the launch of Al-Jazeera America.
And Qatar put itself on the world sporting map with a successful bid to host the 2022 FIFA World Cup.
Under Sheikh Hamad's rule, the emirate remained a staunch Western ally, hosting two US military bases at As-Sayliyah and Al-Udeid.