Mr Haider, far right, watches a march-past

"It is unacceptable that the past of our fathers and grandparents is reduced to that of criminals," he told a gathering of about 2,000 veterans in the southern town of Ulrichsberg.

Mr Haider, former chief of the Freedom Party, said: "Most who come here are not old Nazis or neo-Nazis.

"They are old citizens who suffered during the war and lost their youth to the war and then began to rebuild."

Mr Haider received a spontaneous standing ovation from the crowd.

Austria was annexed by Hitler's Germany in 1938, and its army was fully incorporated into the Third Reich.

Ethnic tolerance

However, the theme of this year's 41st gathering centred largely on democracy for all of Europe.

Mr Haider also called for compensation for slave labourers, who were forced to work on farms and in factories throughout Hitler's Third Reich. He also endorsed tolerance for ethnic minorities in Europe.

Mr Haider has praised Hitler's employment policies, sympathised with SS veterans and labelled Nazi concentration camps "punishment camps".

Flying the flag for old soldiers

In October 1999, his Freedom Party ran an election campaign using the Nazi-invented slogan "Ueberfremdung" - too many foreigners.

He resigned as party leader in May after Austria's 14 EU partners slapped sanctions on the country for allowing the Freedom Party to join the government coalition, but he is still generally believed to be pulling the party strings.

The sanctions were lifted last month after an EU commission found Austria in compliance with EU standards of democracy and human rights.

The Ulrichsberg gathering, held each year on the first Sunday of October, has been harshly criticised as a festival for old Nazis that serves as a feeding ground for neo-Nazis.

Three years ago, the ruin of a church that serves as a monument to Nazi soldiers who died in the war was attacked and severely damaged. It has since been restored.

At the entrance, the old SS slogan "Die Ehre Unserer Soldaten Heisst Treue" (the honour of our soldiers is their loyalty) is carved in large elaborate letters on the wall.