The Queen has said that Britain and Ireland shall "no longer allow our past to ensnare our future" at a historic state banquet in honour of President Michael D Higgins.
Northern Ireland Deputy First Minister and ex-IRA commander Martin McGuinness stood and joined in a toast to the Queen, the Duke of Edinburgh and the people of the UK as an orchestra played God Save The Queen.
The banquet is being held at the Queen's home, Windsor Castle, where the President is staying with his wife Sabina, and is made all the more significant due to the presence of Mr McGuinness - a move unthinkable only a decade ago.
In her speech, in front of the political elite and stars including Daniel Day-Lewis, Dame Judi Dench and Irish rugby hero Brian O'Driscoll, the Queen said the goal of modern British-Irish relations can be "simply stated".
She said: "It is that we, who inhabit these islands, should live together as neighbours and friends. Respectful of each other's nationhood, sovereignty and traditions.
"Cooperating to our mutual benefit. At ease in each other's company.
"After so much chequered history, the avoidable and regrettable pain of which is still felt by many of us, this goal is now within reach.
"I started by speaking of ten centuries of history. But there is a balance to be struck between looking back at what has happened, and cannot be changed; and looking forward to what could happen, if we have the will and determination to shape it.
"My visit to Ireland, and your visit this week, Mr President, show that we are walking together towards a brighter, more settled future.
"We will remember our past, but we shall no longer allow our past to ensnare our future. This is the greatest gift we can give to succeeding generations."
The Queen also made a witty reference to her famous appearance in the London 2012 opening ceremony, saying: "And it took someone of Irish descent, Danny Boyle, to get me to jump from a helicopter."
The Queen shook hands with all the guests at the banquet, including Mr McGuinness.
The highly successful state visit to Ireland by the Queen and the Duke of Edinburgh in May 2011 paved the way for the return by President Higgins and makes the attendance of Mr McGuinness at the royals' home, the latest in a series of recent milestones in Anglo-Irish relations.
Just hours before the banquet the sister of a woman killed in the Birmingham pub bombings called for the arrest of Mr McGuinness.
Julie Hambleton, whose 18-year-old sister Maxine died in the atrocity, was taking part in a small demonstration outside Windsor Castle calling for justice for the victims of the bombings.
Ms Hambleton expressed anger at the British establishment for giving "permission" to Mr McGuinness to "come on to the mainland", adding: "By rights he should be arrested. He's got so much blood on his hands."
She described his attendance at the event as "the epitome of hypocrisy".
Mr McGuinness is seated next to President of the Royal Society Sir Paul Nurse and Director of Liberty Shami Chakrabarti.
The Queen said she and the Duke recall their visit to Ireland "with great pleasure" and said they were left with a "happy and enduring impression".
In his speech, which featured a few words of Irish, President Higgins made reference to the Queen's historic visit to Ireland, in which she "admirably" did not "shy away from the shadows of the past".
He said: "Your gracious and genuine curiosity, your evident delight in that visit, including its equine dimension, made it very easy for us to express to you and, through you to the British people, the warmth of neighbourly feelings.
"It laid the basis for an authentic and ethical hospitality between our two countries. "Admirably, you chose not to shy away from the shadows of the past, recognising that they cannot be ignored when we consider the relationship between our islands."
President Higgins said her "apt and considered words when you addressed some of the painful moments of our mutual history" were valued.
He said people were "moved" by the Queen's gestures of respect at sites of national historical significance in Ireland. "These memorable moments and these moving words merit our appreciation and, even more, our reciprocity.
"While the past must be respectfully recognised, it must not imperil the potential of the present or the possibilities of the future - ar feidireachtai gan teorainn - our endless possibilities working together," he said.
President Higgins described his visit as "a very visible sign of the warmth and maturity of the relationship between our two countries".
Adding: "It is something to be truly welcomed and celebrated."
He said Ireland and Britain "live in both the shadow and in the shelter of one another, and so it has been since the dawn of history".
He added: "Through conquest and resistance, we have cast shadows on each other, but we have also gained strength from one another as neighbours and, most especially, from the contribution of those who have travelled between our islands in recent decades."
Like the Queen, President Higgins made reference to the "extensive" contribution of Irish men and Irish women to life in Britain. He said: "It runs from building canals, roads and bridges in previous decades, to running major companies in the present, all the while pouring Irish personality and imagination into the English language and its literature."
The Queen acknowledged the "discrimination and a lack of appreciation" once faced by Irish people in Britain.
Adding: "Happily, those days are now behind us, and it is widely recognised that Britain is a better place because of the Irish people who live here."
The Queen also made reference to the peace process in Northern Ireland.
"Our two governments will continue to work together in Northern Ireland to support the First and Deputy First Minister and the Executive to advance the peace process and to establish a shared society based on mutual respect and equality of opportunity," she said.
The Queen is wearing the official Diamond Jubilee white silk and lace dress designed by Angela kelly, and the Grand Duchess Vladimir of Russia Tiara which has droplets of emeralds.
In the splendour of Saint George's Hall, Hollywood stars Day-Lewis and Dame Judi, rugby legend O'Driscoll and his actress wife Amy Huberman, hat designer Philip Treacy, sculptor Sir Antony Gormley, and Sir Terry Wogan are sitting around a polished table set for 160 guests.
The Queen is sitting to the left of President Higgins and the Duchess of Cornwall is sitting on his right hand side.
Prime Minister David Cameron and his wife Samantha, Deputy Prime Minister Nick Clegg and Labour leader Ed Miliband are also in attendance, with the First Minister of Northern Ireland Peter Robinson, Taoiseach Enda Kenny and Northern Ireland Secretary Theresa Villiers.
Other members of the royal family at the banquet include the Prince of Wales who is sitting next to President Higgins' wife Sabina, and the Duke of Edinburgh is sitting on her other side.
Former Irish President Mary McAleese is also at the banquet. Nearing the end of his speech, President Higgins said: "The shadow of the past has become the shelter of the present.
"While we grieve together for lost lives, we will not let any painful aspect of our shared history deflect us from crafting a future that offers hope and opportunity for the British and Irish people."
President Higgins invited guests to stand and join him in a toast to the health and happiness of the Queen and Prince Philip and the people of the UK.
Mr McGuinness stood up and participated in the toast as the orchestra played God Save The Queen.
Earlier today, President Higgins bowed his head in a mark of respect at a plaque in memory of the Queen's cousin Lord Mountbatten in Westminster Abbey, assassinated by the IRA on holidays in Ireland in 1979. The President was there to pay respects at the tomb of the unknown warrior.