The royal family, which was quick to use force earlier this week against demonstrators in the landmark square that has been the heart of the anti-government demonstrations, appeared to back away from further confrontation following international pressure from the West.
The demonstrators had sought to emulate successful uprisings in Tunisia and Egypt in attempting to bring political change to Bahrain, home to the U.S. Navy's 5th Fleet - the centerpiece of Washington's efforts to confront Iranian military influence in the region.
Crown Prince Salman bin Hamad Al Khalifa, deputy supreme commander of the armed forces, appealed for calm and political dialogue in a brief address on state TV.
A leader of Al Wefaq, the Shiite opposition group, said the crown prince "did the right thing" by withdrawing security forces from the streets and letting people return to Pearl Square.
"The crown prince opened the door for dialogue because he prevented more killing from occurring and allowed people to demand their rights," said the leader, Abdul-Jalil Khalil.
People circling through the square clapped, whistled and wept. Some wore white sheets symbolizing their readiness for martyrdom, while others carried Bahraini flags, flowers and signs that said "Peaceful."
"We are victorious!" they chanted as they marched back into the square that has been the headquarters for their revolt against the Sunni monarchy in the predominantly Shiite island nation.
They also chanted: "The people want the removal of the regime."
As night fell, defiant protesters erected barriers, wired a sound system, set up a makeshift medical tent and deployed lookouts to warn of approaching security forces.
Bahrain's trade unions called for a general strike on Sunday. Some students on the square said they will skip class for a week to mourn those killed in the uprising.
President Barack Obama discussed the situation with King Hamad bin Isa Al Khalifa, asking him to hold those responsible for the violence accountable. He said in a statement that Bahrain must respect the "universal rights" of its people and embrace "meaningful reform."
Britain welcomed the move to withdraw the tanks and strongly supported efforts to initiate a dialogue, Foreign Secretary William Hague said in a telephone conversation with the crown prince, who has been delegated by Bahrain's royal family to open a dialogue with the opposition.
"The sooner we return to calm, the sooner we can reach our goals," Salman said. "Citizens of Bahrain, let's work together with all political blocs to help return the security situation to normal so we can announce a day of mourning for those we've lost."
The violence forced the cancellation of a lower-tier auto race in Bahrain scheduled for this weekend. Formula One officials also are weighing whether to cancel the season-opening event in Bahrain on March 13 - a move that would be a huge blow to the nation's prestige.
Ibrahim Sharif, head of the opposition Waad Society, said that pulling the armed forces off the streets of Manama was not enough and demanded guarantees that protesters can stage rallies without fear of being attacked. Waad is an umbrella group of protest factions.
Some protesters were wary of Bahrain's leaders, despite the military withdrawal.
"Of course we don't trust them," said Ahmed al-Shaik, a 23-year-old civil servant. "They will probably attack more and more, but we have no fear now."
He was skeptical that dialogue could proceed after the crackdown and said the government should step down.
Hassan Youssef, 33, said the crown prince's speech was self-serving.
"He is afraid for his Formula One contract and thinks by just telling us to calm down we will listen," Youssef said. "We want the entire royal family to step aside. We don't want dialogue."
Anti-government protesters took over the square earlier in the week, setting up a camp with tents and placards, but they were driven out by riot police in an assault Thursday that killed five people and injured more than 200. The government then clamped down on Manama by sending tanks and other armored vehicles into the streets, putting up barbed wire and establishing checkpoints to deter gatherings.
On Friday, army units opened fire on marchers streaming toward the square. More than 50 were injured.
The protest movement began with calls to weaken the Sunni monarchy's power and address claims of discrimination against the Shiite majority. The mood turned toward defiance of the entire ruling system after the crackdown.
Some members of Bahrain's Sunni ruling system worry that Shiite powerhouse Iran could use Bahrain's majority Shiites as a further foothold in the region.
On Saturday morning, jubilant Bahrainis honked car horns, waved flags and flashed v-for-victory signs as the tanks moved away from the square. An Associated Press photographer saw a contingent of riot police who replaced the military forces fire tear gas at people celebrating the military withdrawal from the square and detain at least 10 people.
But the police then drove away, allowing thousands of protesters to return to the square.