Berg, whose beheading was broadcast on an Islamic militant Web site, was an intelligent and outgoing man whose travels took him from abject poverty in Africa to perilous hot spots in Iraq, friends said.
Chester County Commissioner Andrew Dinniman said about 500 people attended the service Friday, including Berg's friends from high school and college, and past teachers. His father, brother and sister spoke, and the rabbi who presided over the ceremony read words written by Berg's mother.
"You realized what an energetic and talented young man this was, and what a tragedy his death is," said Dinniman, whose daughter was on a Science Olympiad team with Berg in high school. "On one hand, it was a solemn occasion in which you could hear a pin drop, but it was also a tribute done with poetry, humor and laughter."
Bob Concordia, 66, a family acquaintance, said "there were some tears, but there were also some laughs. I left with a feeling that he was somewhat of a martyr."
The Berg family had earlier urged curiosity seekers, politicians and media members not to attend the memorial. Police said they would turn away and, if necessary, arrest outsiders trying to attend.
"I'd like to see my brother buried in dignity," brother David Berg said.
Berg's body was buried at a Jewish cemetery outside Philadelphia in a private ceremony earlier Friday, a family spokesman said.
Also Friday Attorney General John Ashcroft announced that U.S. authorities investigated Berg for a possible connection to terrorists but determined there was no link.
CBS News National Security Correspondent David Martin reports U.S. officials said the FBI questioned Berg in 2002 after a computer password he used in college turned up in the possession of Zacarias Moussaoui, the al Qaeda operative arrested shortly before Sept. 11 for his suspicious activity at a flight school in Minnesota.
Moussaoui is now in federal custody and awaiting trial on conspiracy charges stemming from the Sept. 11 attacks.
"The suggestion that Mr. Berg was in some way involved in terrorist activity, or may have been linked in some way to terrorist activity, is a suggestion that we do not have any ability to support and we do not believe is a valid one," Ashcroft said at a news conference.
The 2002 investigation determined that an e-mail address once used by Berg apparently was obtained by the Moussaoui acquaintances while Berg was briefly an engineering student at the University of Oklahoma in 1999.
Berg, a small businessman who went to Iraq seeking a role in reconstruction, was found dead May 8. On May 11, an Islamic Web site posted video in which masked militants beheaded him. The CIA has identified the speaker in the video — the man who murdered Berg — as Abu Musab al-Zarqawi, a terrorist suspected in numerous attacks in Iraq.
In the wake of Berg's gruesome murder, the past link to Moussaoui seems a stranger-than-fiction coincidence — an American who inadvertently gave away his computer password to one suspected al Qaeda operative is later murdered by another notorious al Qaeda operative, Zarqawi.
The slain man's father, Michael Berg, told reporters that his son met Moussaoui while riding the bus to classes, and had allowed the suspect to use his computer.
But the 2002 FBI interview could explain the bureau's interest in Berg while he was detained by authorities in Iraq shortly before the militants kidnapped and killed him.
Berg was picked up on March 24 and released on April 6. The details of that detention are the subject of a dispute between the Berg family and the U.S. government.
The family contends Berg was detained by the U.S. military, and even filed suit seeking his release on April 5. The U.S. military says Iraqi police detained him. Iraqi police deny that.
To back its claims that Berg was in U.S. custody, the family gave The Associated Press copies of e-mails from Beth A. Payne, the U.S. consular officer in Iraq.
"I have confirmed that your son, Nick, is being detained by the U.S. military in Mosul. He is safe. He was picked up approximately one week ago. We will try to obtain additional information regarding his detention and a contact person you can communicate with directly," Payne wrote to Berg's father on April 1.
Payne repeated that Berg was "being detained by the U.S. military" in an e-mail the same day to Berg's mother, Suzanne. The next day, Payne wrote that she was still trying to find a local contact for the family, but added that "given the security situation in Iraq it is not easy."
The government says the e-mail from Payne was false. State Department spokeswoman Kelly Shannon said Payne's information came from the Coalition Provisional Authority. The authority did not tell Payne until April 7 that Berg had been held by Iraqi police and not the U.S. military, she said.
"As Mr. Berg had been released, the consular officer did not convey this information to the family because he was released, thankfully," Shannon said. "And we thought he was on his way."
Coalition spokesman Dan Senor said Wednesday that Iraqi police arrested Berg in Mosul on March 24 because local authorities believed he may have been involved in "suspicious activities."
In Mosul, police chief Maj. Gen. Mohammed Khair al-Barhawi insisted Thursday that his department had never arrested Berg and maintained he had no knowledge of the case.
During his detention, Berg was questioned by FBI agents three times.
Berg is believed to have been kidnapped days after Iraqi police or coalition forces released him. The family has blamed the government for keeping him in custody for too long while anti-American violence escalated in Iraq.
Shortly before Berg's disappearance, he was warned by the FBI that Iraq was too volatile a place for unprotected American civilians and that he could be harmed, a senior FBI official, speaking on condition of anonymity, said Wednesday.
Officials said the U.S. government warned Berg to leave Iraq, and offered him a flight out of the country, a month before his grisly death.
The Bergs said they want to know if the government had received an offer to trade Iraqi prisoners for Nicholas Berg. On the videotape of his death, Berg's killers made a reference to a trade offer, but U.S. officials have said they knew of no such offer.
Michael Berg said he wanted to hear President Bush address the issue.
"I would like to ask him if it is true that al Qaeda offered to trade my son's life for the life of another person," Michael Berg said. "And if that is true, well, I need that information. … and I think the people of the United States of America need to know what the fate of their sons and daughters might be in the hands of the Bush administration."
The video in which Berg is killed was titled: "Sheikh Abu Musab al-Zarqawi slaughters an American infidel with his own hands."
The U.S. military has already posted a $10 million reward for Zarqawi for having orchestrated some of the deadliest terrorist attacks in Iraq.
Al-Zarqawi is thought to be in Iraq, operating his own terrorist network, known simply as the "Zarqawi network."