But her poor showing here was a searing blow to the former first lady, dissolving her image as her party's inevitable nominee and setting up a critical five-day race to Tuesday's leadoff primary in New Hampshire.
"For Hillary Clinton, the party's former front-runner, Iowa delivered a crushing blow, but not a knock-out," writes CBSNews.com senior political editor Vaughn Ververs. (Read Ververs' full analysis.)
Clinton told cheering supporters that she had congratulated caucus winner Sen.and the second-place finisher, former Sen. . She promised to take "this enthusiasm and go tonight to New Hampshire."
"We're going to keep pushing as hard as we can," she said, with former President Bill Clinton and their daughter Chelsea at her side. "I am so ready for the rest of this campaign and I am so ready to lead."
Iowa Democrats delivered a cautionary tale to the New York senator, an established figure on the public stage who is running to be the first woman president.
Caucus goers appeared to reject the central premise of Clinton's candidacy, favoring Obama's message of hope and change over her theme of experience and leadership.
More troubling still was her performance among key groups that had been expected to form the core of her support.
Entrance polls in the state showed Obama narrowly beating Clinton among women voters, whom her campaign had expected to turn out in large numbers to support her pioneering quest. She also failed to win a majority of voters who called health care their chief concern, despite her long association with the issue.
Her candidacy also was swamped by a surge of first-time caucus goers who soundly supported Obama. Projections showed a turnout of 230,000 for Democrats, compared to 124,000 who showed up for Democratic caucuses in 2004. The turnout was nearly twice as large as for the Republicans, whose turnout also was up from four years ago.
Clinton stuck with familiar themes in her concession speech, telling supporters she felt confident New Hampshire voters would choose a candidate "who will be able to go the distance and who will be ready on Day One."
She was flying to New Hampshire late Thursday night and planned to attend a campaign rally with her husband Friday morning. All the remaining Democratic contenders were to meet in a nationally televised debate Saturday.