After nine months of intriguing, emotional, and at times acrimonious, public discussion, the city and state governments poured lavish praise on the design, which has as its centrepiece the hollow pit where fires burned and many remains were buried after the terrorist attacks on September 11 2001.
"It was what America stood for," the architect said after the announcement. "It was what the freedom of America stood for."
Libeskind, who began work on the project when he visited Ground Zero last summer to find "the voice of the site", said it was a "tremendously proud and moving moment".
The state governor, George Pataki, said the plan was "truly an emotional protection of the site of Ground Zero itself" and "brings back the life to lower Manhattan that is so important to our future".
But as the competition ended the debate between survivors' families, property developers and city and state authorities to decide how much of Libeskind's plan should remain was only just beginning.
Building work will not begin for more than a year. In the meantime disputes are raging on everything from proposals for underground parking to an enclosed mall and the amount of office space that will be reserved for the site, as well as the scale and nature of any memorial that will be left there. The Libeskind plan will serve only as a guide to the final design.
Survivors' groups said yesterday that they were pleased with the decision but concerned that any adaptations of the plan might cease to make the memorial the priority.
"The view of the American public and the coalition of families' groups is that the memorial must come first," said Anthony Gardner of the World Trade Centre United Family Group. "Our primary concern now is to stop the port authority from building a bus terminal on the land where most of the remains are. This is a site comparable with Gettysburg and Pearl Harbor and we have a duty not just to the families and the bereaved but to history to preserve it."
Responsibility for the site is divided between the governors of New York and New Jersey, who own the land through the New York port authority, and Larry Silverstein, who leased the space. Neither Mr Bloomberg, nor the residents of lower Manhattan, nor the survivors' groups have any statutory right to influence the decision.
Mr Silverstein has openly questioned whether businesses will want to rent space next to a hole that reminds them of their vulnerability. He says he has the obligation and the right to rebuild 929,000sq metres (10m sq ft) of office space on the site and does not feel compelled to use either the designs or the architects.
"He's willing to work with people," one person who works with him told the New York Times.
"But the developer will decide everything about the design. We're the ones who have to [let] these buildings."
The economic downturn has already left a glut of vacant office space in Manhattan, which many believe will take years to fill. Meanwhile the port authority would like to make the area a transport hub.
"The physical wreckage has been cleared from the site but the legal and institutional piles are still strewn across the landscape," said Robert Yaro, the leader of the Civil Alliance to Rebuild Downtown New York.
"The real challenge [in] moving forward is to safeguard the integrity of the designs to make sure that they are not whittled away by conflicts over parking garages, a shopping mall or financial concerns," he added.
Libeskind's design was chosen from a shortlist of nine which was later reduced to two, the other finalist being a plan for latticework towers put forward by Think, a team which includes Rafael Vinoly and Frederic Schwartz.
Although Libeskind had long been the favourite, particularly once the British architect Norman Foster was ruled out last month, it seemed earlier this week that the Think proposal might mount a late challenge.
The two finalists have been campaigning for their designs like politicians fighting for public support.
On Monday they appeared on the Oprah Winfrey show, and they have been profiled in various newspapers and magazines, as well as appearing on late night television shows.
Earlier this week an email message from Libeskind's studio in Berlin urged friends to vote for his plan on website polls.
Libeskind believes the process has changed architecture.
"We have no regrets," he said. "Whatever people want to talk about is fine. From now on architecture will never be the same.
"There will never be a building without people talking about what is happening and what it's going to look like. From now on architecture will be as interesting for people to talk about as the taste of wine."
Many people, including the former New York mayor Ed Koch, believe that because the plan may yet be radically changed it is too early to offer praise or condemnation. "It is not clear to me what is actually going to get built on that site," he said. What they have commissioned are concepts. I just don't have enough architectural knowledge to envision what it will look like so I'll reserve judgment."