NSW Governor Margaret Beazley used her Australia Day address at Sydney's harbourside morning ceremony in Barangaroo to reflect on the "catastrophic" blazes across the state.
"Sadly overshadowing everything at the moment, particularly on the eastern seaboard, is the catastrophic impact of the bushfires on the land and those who do walk on the land," she said on Sunday.
Premier Gladys Berejiklian said Australia Day this year comes during a "difficult time" as the state comes to terms with the impact of the devastating fires, the lives lost and the impact on wildlife and the land.
The premier called for renewed public discussion about how the ancient knowledge of Aboriginal people can be used to better protect the environment and communities.
"These devastating bushfires encourage us as a community to reflect on Aboriginal practices that sustained this land for millennia," she said.
Australia Day marks the anniversary of the arrival of the First Fleet of British ships into Port Jackson in 1788.
The morning ceremony began with a welcome to country by Wiradjuri woman Yvonne Weldon who said January 26 will always be a "sombre" day for Aboriginal people.
The Metropolitan Local Aboriginal Land Council chairperson said whether people call January 26 Invasion Day, Survival Day or Australia Day - it's important to know the country didn't begin 232 years ago.
"It was here, we were here before time began," he said.
After the speeches, the national anthem was sung in both the Eora language and English by the KARI singers and Isaiah Firebrace as the Aboriginal and Australian flags were raised on the Sydney Harbour Bridge.
Later in the day, more than 10,000 protesters marched from Hyde Park to Victoria Park in Camperdown arguing that January 26 marks "invasion day" for Aboriginal people.
Ben, who chose not to share his last name, chanted loudly as he held a large banner which read: "No pride in indigenous genocide".
"From day one its been an invasion and a genocide of the indigenous people," he told AAP.
"At the very least we need to see a change in the date."
Sydney woman Bronwyn Vost, who is a descendant of a member of the first fleet, said she felt it was her responsibly to show support for the cause.
"I remember watching the march in 1988 and I got involved from then," she said.
Among the protesters were indigenous NRL players Cody Walker and Latrell Mitchell from the South Sydney Rabbitohs.
Nearby, thousands flocked to the Sydney Opera House to watch the popular Ferrython race with the Fred Hollows ferry claiming the win.
Later in the evening, crowds will be entertained by Australia Day Live at Circular Quay and the Sydney Opera House with musical performances, entertainment and pyrotechnics.
In an Australia Day first, the Sydney Opera House sails will be illuminated with projections including a tribute collage to firefighters and communities impacted by bushfires this summer.
‘To move forward’
Thousands of people rallied at Parliament House in Melbourne to mark Invasion Day - to counter the celebration of the arrival of the First Fleet in 1788.
Indigenous speakers addressed the crowd and told those assembled January 26 was a day of mourning.
Elder Robbie Thorpe said it was a day of mourning and told protesters he attended the dawn service at the Kings Domain Resting Place.
The location is the commemorative burial place of 38 Victorian Aboriginal people whose remains were repatriated.
"We need to heal the ancestors' spirits for this country to move forward," Mr Thorpe, a Krautungalung man of the Gunnai Nation, said on Sunday.
Far-right figure Avi YemIni was led away from the Invasion Day marchers by police as protesters made their way through the city.
But while thousands protested, others took part in the official Australia Day parade to celebrate the state's cultural diversity.
Firefighters who battled the blaze at Mallacoota, in the state's east, led the official parade through the city.
The bushfire at the small coastal community left thousands trapped on the beach while the smoke from the blaze blocked the sun.
"Very emotional, huge honour. Especially seeing the crowd and the appreciation that came from that," Mallacoota Fire Brigade captain Rod Lewis said of leading the parade.
"Our primary focus was the loss of life, keep it to absolutely none and we done that. That was our motivation," he said of the battle to save the isolated community.
Victoria's Premier Daniel Andrews addressed the official flag raising ceremony and paid tribute to those who worked to tackle the bushfire crisis.
"This Australia Day is special, it's a little bit different because we have seen in the last few months the most extraordinary examples of courage and kindness, compassion and capability...and so many acts of generosity," Mr Andrews said.
He thanked the emergency services workers and defence force personnel for their service during the bushfire crisis and noted it was still ongoing.
"We have seen the worst of nature and the best of the Australian spirit," he said.
A fireworks show originally planned for the event was cancelled earlier this month because staff at Parks Victoria - which support the display - have been flat out dealing with the state's bushfire crisis.
Police are maintaining a strong presence on the roads as part of a long weekend operation aimed at preventing deaths, particularly those fuelled by drink and drug driving.
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