There was something missing from the opening ceremony of the Sydney Olympics. Crocodile Dundee for one, and anyone dressed as a koala bear or a kangaroo. Australians still wince at the embarrassment of the bike-riding rubber marsupials which impresario Ric Birch sent out to represent the country at the closing ceremony of the Atlanta Games.

Clive James, writing in the Sunday Age, recalled yesterday that the episode made the Australian media and intelligentsia worry that Australia's reputation as a grown-up country might have been damaged.

The Australian media are, however, thrilled beyond words (almost) at the success of its 10-out-of-10 Olympics opening ceremony, a rating bestowed by the president of the International Olympic Committee, Juan Antonio Samaranch.

They marvel at the fact that everything in the end is running like clockwork, even the Olympic buses. Yet many Australian observers admit their country is still plagued by insecurities and oversensitive to foreign criticism. Domestic criticism is nothing new and for many commentators it was touch and go whether or not the whole project would be sunk by corruption and mismanagement.

Now that Sydney has done a brilliant job, the media are fretting over how the world is reporting its short time in the spotlight. They have found much stereotyping on television abroad - lots of references to Crocodile Dundee and kangaroos and koalas - and one BBC broadcaster's quip last week that the Sydney Opera House should be "seen and not heard" has been widely reported.

Some see this obsession as irritating provincialism. "There's still far too much navel-gazing and worrying what do other people think of us," said a local television presenter. "Who cares what the BBC says?" Any foreign comment and analysis are, of course, an advance on being ignored.

Bill Bryson recalls that three years ago he did a computer search for stories about Australia in the New York Times. Twenty came up, compared to 120 on Peru and 150 on Albania, and Australia was outstripped as a subject by balloonists and dogs. Australia, he concluded in his book A Sunburned Country, was slightly more important to Americans than bananas, but not nearly as important as ice-cream. This is not to say Australians can't poke fun at themselves or at how the world sees them. The preparations for the Games have been hilariously satirised by John Clarke and Ross Stevenson on Australian Broadcasting Corporation (ABC) television. In one excerpt, an Olympic organiser answers "frequently asked questions about Australia". One is: what is the separation of powers?

He responds: "The separation of powers is a constitutional division of the two entities in which power is vested in Australia: Kerry Packer and Rupert Murdoch. If Mr Packer wants cricket, Mr Murdoch would be given telecom. If Mr Murdoch wants rugby league, of course Kerry Packer would be given the cotton industry."

There is no doubt the Olympics have done much to define what Australia really is about and who Australians are. "We Australians are so accustomed to putting ourselves down that as the big moment approached, all we could do was fret that we might be embarrassed as some were embarrassed by the 'roos at Atlanta," said commentator Leo Schofield. "Well, put simply, it was a bloody triumph from go to whoa . . . "

Much of such exultation stems from the largely unspoken judgment that these are a much better Olympics than Atlanta, and from the thrilling first victory over the US swim team in the 100-metre relay.

Measuring up to the US is one way for locals to determine how stands Australia, and it has helped engender nationalist fervour, especially when the relay team strummed imaginary guitars to mock an American swimmer's boast that they would smash the Australians like guitars. After the last few heady days, no Australian youngster can be left in any doubt that to excel as an athlete is the supreme national goal. The opening ceremony appeared to make a powerful statement about how sport has become a secular religion in this country of 18 million people.

It was redolent of a religious rite, with Cathy Freeman, dressed in shimmering attire, climbing like a sacrificial virgin to an altar of fire and water to light the Olympic flame, while the orchestra played the solemn Te Deum by Berlioz. The ceremony was most of all convincing evidence of a country trying to come to terms with past and present racism through its favoured medium of sport.

The early dreamtime aboriginal sequence, dedicated to the songs, dances and ceremonies of the indigenous people who have been marginalised by two centuries of white occupation, included a blunt reference to the genocidal assaults on aborigines after the arrival of European settlers in the late 1700s. The choice of Freeeman, an Aboriginal athlete and gold medal favourite for the 400 metres, to accept the torch from an older generation, represented by, among others, the wheelchair-bound athletic star of the 1950s, Betty Cuthbert, now stricken with Parkinson's disease, was a celebration of life rather than supremacy.

It was also a giant step away from the old White Australia policy and the idea that European settlers came to an "empty land".

Six years ago Cathy Freeman was given a dressing down by Commonwealth Games boss Arthur Tunstall for carrying an Aboriginal flag on a victory lap in Canada. Two months ago she rebuked the Prime Minister, John Howard, for his "insensitivity" in refusing to apologise for the treatment of a people who held tenure in Australia for 40,000 years.

But the country cheered her appearance at the climax of a ceremony which was a remarkably successful synthesis of old and new Australia, and a symbol of multiculturalism in a tolerant city containing Australians from countries as diverse as China, Bangladesh and Iraq (the nationalities of my last three taxi-drivers). "The choice of Cathy Freeman was a coup," said John Lombard, business and finance editor of ABC. "It hit all the right buttons: she was young, vibrant, black and a woman."

The athlete's grandmother was one of the "stolen generation" of Aboriginal children snatched from their parents between 1910 and 1970 to be "civilised" in white-run institutions. Looking on at the ceremony was Mr Howard, who is criticised by liberal Australians for "living in the 1950s" and refusing to apologise to the stolen generation. There is new pressure now on Mr Howard to say the word "sorry", in response to what most commentators saw as the finest possible example of the Olympic spirit.

However, many Australians are decidedly ambiguous about the issue. The conservative Australian tabloid, the Sunday Telegraph, which described the ceremony as a "truly great moment" in Australian history, referred with old-style political incorrectness to Aboriginal performers as an "almost frightening swarm". It went on to conclude, nevertheless, that this was "Australia's global declaration that it acknowledged its indigenous people and cared about their future, while feeling considerable regret - yes even sorrow - about the past."