US Vice President Joe Biden and former British prime minister Tony Blair headed the long list of visitors who gathered outside Israel's parliament building in Jerusalem for the ceremony.
Later today, Mr Sharon's body was to be taken from the Knesset to his farm in southern Israel for burial.
"Arik was a man of the land," President Shimon Peres, a long-time friend and sometimes rival of Mr Sharon, said in his eulogy. "He defended this land like a lion and he taught its children to swing a scythe.
"He was a military legend in his lifetime and then turned his gaze to the day Israel would dwell in safety, when our children would return to our borders and peace would grace the Promised Land."
Mr Sharon died on Saturday, eight years after a devastating stroke left him in a coma from which he never recovered. He was 85.
One of Israel's greatest and most divisive figures, he rose through the ranks of the military, moving into politics and overcoming scandal and controversy to become prime minister in his final years.
He spent most of his life battling Arab enemies and promoting Jewish settlement on war-won lands. His backers called him a war hero. His detractors, first and foremost the Palestinians, considered him a war criminal and held him responsible for years of bloodshed.
But in a surprising about-face, he led a historic withdrawal from the Gaza Strip in 2005, uprooting all soldiers and settlers from the territory after a 38-year presence in a move he said was necessary to ensure Israel's security.
The speakers at today's ceremony largely glossed over the controversy that surrounded Mr Sharon, and instead focused on his leadership and personality.
"I didn't always agree with Arik and he didn't always agree with me," said Prime Minister Benjamin Netanyahu, who resigned from Mr Sharon's government in protest at the Gaza withdrawal. Nevertheless, he called Mr Sharon "one of the big warriors" for the nation of Israel.
"He was pragmatic. His pragmatism was rooted in deep emotion, deep emotion for the state, for the Jewish people," Mr Netanyahu said.
Nearly 10 years on, the withdrawal from Gaza remains hotly debated in Israeli society. Supporters say Israel is better off not being bogged down in the crowded territory, which is now home to 1.7 million Palestinians.
Critics say the pullout has only brought more violence. Two years after the withdrawal, Hamas militants seized control of Gaza. In a reminder of the precarious security situation, Palestinian militants fired two rockets from the Gaza Strip today. Mr Sharon's ranch in southern Israel is within range of such projectiles but today's missiles did not hit Israel. No injuries or damage were reported.
In a heartfelt address, Mr Biden talked about a decades-long friendship with Mr Sharon, saying the death felt "like a death in the family".
When the two men discussed Israel's security, Mr Biden said he would understand how Mr Sharon earned the nickname "The Bulldozer", explaining that Mr Sharon would pull out maps and repeatedly make the same points to drive them home.
"He was indomitable," Mr Biden said. "But like all historic leaders, all real leaders, he had a north star that guided him. A north star from which he never, in my observation, never deviated. His north star was the survival of the state of Israel and the Jewish people wherever they resided."
The US Vice President also praised Mr Sharon's determination in carrying out the Gaza withdrawal.
"The political courage it took, whether you agreed with him or not, when he told 10,000 Israelis to leave their homes in Gaza, in order from his perspective to strengthen Israel... I can't think of a more difficult and controversial decision he made. But he believed it and he did it. The security of his people was always Arik's unwavering mission."
Mr Sharon's coffin has been lying in state at the Knesset's outdoor plaza where Israelis from all walks of life paid respects throughout yesterday.
With Mr Sharon's two sons, Omri and Gilad, looking on, today's ceremony took place under a mild, winter sun. In addition to Mr Biden and Mr Blair, the prime minister of the Czech Republic and foreign ministers of Australia and Germany were among those in attendance. Even Egypt, the first Arab country to make peace with Israel, sent a low-level diplomat, its embassy said.
Mr Sharon's life will be remembered for its three distinct stages. First, was his eventful and controversial time in uniform, including leading a deadly raid in the West Bank that killed 69 Arabs, as well as his heroics in the 1973 Mid East war.
Then came his years as a vociferous political operator who helped create Israel's settlement movement and masterminded the divisive Lebanon invasion in 1982. He was branded as indirectly responsible for the massacre of hundreds of Palestinians at the Sabra and Chatilla refugee camps outside Beirut when his troops allowed allied Lebanese militias into the camps. An uproar over the massacre cost him his job.
Yet ultimately he transformed himself into a prime minister and statesman, capped by the dramatic Gaza withdrawal. He appeared to be cruising towards re-election when he suffered the second, devastating stroke in January 2006.