Not even half the votes from Zimbabwe's landmark election had been counted on Monday night when crowds of jubilant and cheering young men paraded through the streets of Harare. They waved small red cards in the air, their way of telling President Robert Mugabe they had had enough of his foul play and it was time for him to take an early shower.

But as the night wore on and results filtered in, it became clear they would be disappointed. The Movement for Democratic Change (MDC) had failed to win a parliamentary majority, which went instead to the ruling Zimbabwe African National Unity-Patriotic Front (Zanu-PF) party. For the time being, at least, President Mugabe would not be hanging up his boots.

But parliamentary arithmetic tells only part of the story. The 76-year-old autocrat woke up yesterday to find his world turned upside down. For the first time in 20 years he had to contend with a vigorous opposition - and one that came from nowhere to take half the seats in just nine months. Having battled through a violent campaign of government-sanctioned intimidation - which caused the deaths of 32 people and left one candidate in a coma - the opposition success was nothing short of a miracle.

The last time anyone threatened Mugabe's power base was in the southern province of Matabeleland in the mid-1980s. His solution then was to have thousands of people, mostly civilians, brutally killed by state troops. But this time all the ageing autocrat could do was to switch on his television and watch MDC leader Morgan Tsvangirai giving a press conference on the BBC.

Before the count there were fears that an MDC loss would spark civil unrest. Some commentators predicted Zimbabweans taking to the streets en masse. But Tsvangirai was quick to point out to the world that while he considered the elections neither free nor fair, it was a result he could work with.

"Change is in the offing," he said. "Zimbabwe will never be the same again."

His announcement that the MDC would be challenging 20 of the counts where Zanu won came as no surprise given the scale and viciousness of the pre-election violence. But no more than a few of these are likely to succeed, perhaps bringing the MDC tally closer to 60 seats.

In any event, both sides have something to shout about. Zanu has won the election but the MDC has unquestionably taken the moral victory. But is that enough?

Zimbabwe must urgently restore domestic and international confidence following years of mismanagement. Its economy is on its knees, the concept of property rights is in tatters, as hundreds of occupied white farms are about to be acquired by the government, and millions of dollars are being wasted on a distant military adventure in the Congo.

Under President Mugabe, Zimbabwe's per capita GDP has fallen from approximately $900 at independence in 1980 to $600 now - a particularly unimpressive achievement by any standards. The resultant poverty, combined with some of the worst rates of HIV infection in southern Africa, have seen life expectancy fall from 49 to 42 in the same period.

In the short term, the MDC can do little to tackle these pressing issues. With its simple parliamentary majority, President Mugabe and Zanu-PF have a free hand to pass any laws they like while maintaining a firm grip on the levers of power.

But the MDC is far from powerless. In concrete terms, its 57 seats give it a veto on all constitutional amendments. So any fanciful proposals to entrench either President Mugabe or his party's position within the corridors of power is highly unlikely.

In broader terms, the emergence of a vigorous opposition should radically alter Zimbabwe's political landscape. The MDC may not run the show but it can certainly give some serious stage direction.

For the first time, Zimbabweans will hear issues such as the crumbling health service, involvement in the Congo war and the occupations of white land rigorously debated by their parliament instead of being rubber-stamped.

And with at least half the country's voters behind it, Mugabe will ignore the MDC at his peril - particularly if he considers running again in the 2002 presidential elections, when he could find himself running against Morgan Tsvangirai.

Between now and then, however, the MDC will have to find someone new to lead it in the parliament. Tsvangirai failed to win a seat following a curious decision to run in a marginal country constituency instead of taking a safe seat in Harare.

An MDC national council meeting today may decide who will become the leader of the opposition. One favourite is Welshman Ncube, the respected lawyer and human-rights activist who took an astonishing 87 per cent of the vote in the southern city of Bulawayo.

But at this early stage many vital questions remain unanswered, the most pressing of which is whether the MDC "moral" victory will encourage international business to invest in Zimbabwe again. The Zimbabwean dollar is pegged at an unrealistic rate against international currencies, bleeding the country's cash reserves and causing the introduction of petrol rationing for the first time yesterday.

"The IMF and other financial institutions won't be rushing back here next week, or even next month. They'll be waiting to see how things pan out," said one western diplomat in Harare.

Reviving the economy is just one of the many pressing problems facing President Mugabe. To ensure his own political survival he must confront internal dissent from the ranks of his own party, which has just taken a hammering. Some of the many failed Zanu candidates could consider crossing the parliament floor to the opposition as the 20-year ethos of one-party rule fades into the ether.

"Good people lost their seats because they were associated with a bad party. If the party adopts an ever harder line, I can see it fragmenting and disintegrating," said one senior moderate.

On the other hand, Mugabe will also have to accommodate the extremists he cultivated to ensure victory, such as the war-veteran leader Chejerai Hitler Hunzvi. They will be pushing for accelerated government grabbing of white-owned land - which would further guarantee Zimbabwe the status of an international pariah state.

President Mugabe's election manifesto was based on antiquated rhetoric about foreign "colonialist" plots to overthrow him. Zimbabwe's voters sent him a clear message this week that it's an explanation they don't buy any more.