During her ceremonial visit to mark the start of the Parliament’s second term, she praised the parliament as a model for other institutions to follow and said it had carved out "a distinctly Scottish position" in the new political landscape.
The Queen set out to praise the "new diverse legislature" brought about by last month’s elections and the success of smaller parties. There are now six Scottish Socialist, seven Green and four independent MSPs in the Parliament.
A total of 19 of the Parliament’s 129 MSPs failed to show up, including all six Scottish Socialist Party MSPs - the reds in the rainbow - who had served notice of their intention not to be there.
Six nationalists stayed away in protest, including Roseanna Cunningham, deputy leader of the SNP, who has long been nicknamed "Republican Rose" for her views. Three Greens were not there, and three Labour MSPs were absent - Elaine Smith, Gordon Jackson, and Johann Lamont - although the party said they all had good reasons. Independent MSP Dennis Canavan also failed to attend.
Although well aware of the protest, the Queen praised the Parliament’s "diversity (which) reflects the nature of Scottish society. There are many different traditions represented in this chamber and each can contribute to the shaping of Scotland. The different perspectives ... can, indeed, enrich debate and the contributions of all shades of opinion will be listened to with interest, I am sure, not just here but elsewhere in Britain, in Europe and the Commonwealth".
She said devolution had solved problems and tackled issues which had not been possible before. "The days when Scotland was limited to a few acts each year are now over," she said. "Today, across a whole range of important issues, this Parliament is carving out a distinctly Scottish position."
In her speech to MSPs, the Queen paid tribute to the "many strengths of character" of the Scots, including determination, principle and tenacity.
"All have contributed greatly to the life of the UK, the Commonwealth, and indeed the world. This history is invaluable as a source from which to draw faith and confidence in the future," she said.
Many of the characteristics of the new Parliament, like its single-chamber system and the importance of committees, could be traced to the old pre-1707 Scots Parliament, she said.
She went on: "We see in this new Parliament, even after four short years, clear signs of a legislature that is distinctly Scottish, a legislature that is working... to fit contemporary Scotland into Britain, into Europe, and into the wider world."
The short ceremony - in which the Queen was welcomed by George Reid, the Presiding Officer, before making a short address for which she was thanked by Jack McConnell, the First Minister - was her third visit to the Scottish Parliament.
She inaugurated the Parliament after its creation in 1999, and addressed it again a year ago in Aberdeen.
The one light-hearted moment came when the Queen referred to the new Parliament building at Holyrood, remarking that MSPs would shortly become her "neighbours".
The Queen should have come to Edinburgh this year to open the new building. However, the huge delays at Holyrood mean she will have to return to perform that ceremony in 2004.
Mr McConnell admitted that the first four years of devolution had been "a challenge".
But the First Minister insisted: "We met that challenge and now we move into a new chapter, no longer establishing an institution and learning to govern in new ways, but now using our collective wisdom to build on that start and win confidence and respect by making a difference in Scotland."
Rail services were thrown into chaos after Edinburgh Waverley station - where the Queen caught the Royal train last night - was evacuated following the discovery of a suspicious car.
Parts of the station were shut for nearly three hours and dozens of trains cancelled, with services to Fife and North Berwick the worst affected.
A controlled explosion was carried out on a Vauxhall Cavalier in a short-stay car park to the east of the main building because British Transport Police officers could not identify items covered up inside the car. An army bomb disposal unit carried out a small controlled explosion to open the boot and doors. The vehicle was searched, but nothing suspicious found.
Sources said the car had been there for several days and asked why it was not removed earlier.