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The runner-up Grand Prix went to another war-themed movie with overtones of Iraq, "Flanders" by French director Bruno Dumont, which examines the effects a conflict in an unnamed Middle East country has on a conscripted young farmer.
Also significantly, the best actor prize went collectively to the French Arab male cast of yet another movie with a similar context: "Days of Glory", by a French director with an Algerian background, Rachid Bouchareb, which shows Algerians and Moroccans fighting for France in World War II.
The Cannes jury, headed by Hong Kong director Wong Kar-Wai, acknowledged that many of the films had a militaristic edge that reflected the state of the world today.
"There has been a lot of violence, a lot of brutality. We've had to enter very bleak landscapes, intently bleak landscapes," one jury member, British actress Helena Bonham Carter, said.
A co-panelist, Palestinian director Elia Suleiman, said: "A lot of them are engaged with the issues of the world today. I don't think it's by accident. We are living in a troubled global atmosphere."
Loach, speaking in a post-ceremony press conference, said that "I don't need to spell it out, but the wars we have seen, the occupations we have seen throughout the world, people can't turn away from that."
The favourite film for the many critics who flocked to Cannes, "Volver" by Spain's Pedro Almodovar, ended up taking the best screenplay and best actress prizes -- the latter going to the entire female cast, led by Penelope Cruz.
"Babel", another widely acclaimed ensemble piece about the perils of cultural incomprehension starring Brad Pitt and Cate Blanchett, earned Mexico's Alejandro Gonzalez Inarritu the best director's award.
"Marie Antoinette", the long-awaited new film by "Lost in Translation" director Sofia Coppola went away empty-handed after being booed in its press screening.
"Pan's Labyrinth", an impressive fantasy pic set in fascist Spain and directed by Mexico's Guillermo del Toro, also failed to pick up a gong despite generating much positive buzz.
The US movie trade magazine Variety said the Cannes jury "struck a relatively safe and conventional note in its distribution of prizes."
The Irish Examiner newspaper hailed Loach's win, but said that some observers were worried "that it merely serves to open up old wounds" over Northern Ireland.
The 12-day festival began in Hollywood fashion, with the out-of-competition world premiere of the blockbuster "The Da Vinci Code", which has gone on to big box office business despite critical scorn.
Red carpet projections of that and other movies, including "X-Men: The Last Stand" and "Over the Hedge", attracted a constant stream of stars.
Among them were Bruce Willis, Keanu Reeves, Hugh Jackman, Halle Berry, Ian McKellen, Gerard Depardieu, Michelle Yeoh, Cate Blanchett and Emmanuelle Beart.
Former US vice-president Al Gore also put in an appearance for "An Inconvenient Truth", in which he warns about global warming, as did director Oliver Stone, who was on hand at the projection of his upcoming film about the September 11, 2001 attacks, "World Trade Center".