U.S. Sen Jon Kyl addresses a crowd of supporters in Scottsdale. Kyl defeated Democratic challenger Jim Pederson.

Matt York / The Associated Press

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In an election year marked by Democratic gains in Congress, Republican Sen. Jon Kyl held his own Tuesday, clinching his third term over challenger Jim Pederson.

The race was by far the most competitive in Kyl's tenure as Pederson, who made a fortune as a shopping-mall developer, poured millions of dollars into his campaign.

Pederson pushed Kyl, particularly on his support for the war in Iraq, which he views as central to the war on terrorism.

But it wasn't enough to unseat Kyl, who has represented Arizona for 20 years in the House and Senate, and who often touted his record on homeland security and Indian water rights.

While celebrating his victory, Kyl told supporters at the Hilton Scottsdale Resort that losses by fellow Republicans around the country show the GOP must "reassess how we approach governing."

"Republicans have made some mistakes," Kyl said. "We have some adjusting to do, and our way of approaching governance, and we need to reflect on that because we did not win a unified victory across the country here."

Meanwhile, Pederson told supporters to celebrate other victories for Democrats in Arizona and around the country.

"I don't know what's going to happen in the Senate," Pederson told supporters after conceding the race in Tempe. "There are still some very close races. But unfortunately Arizona is not one of them."

The race was almost certainly the most expensive in state history, and it was also one of the ugliest.

The two combined to spend roughly $25 million, and they flooded the airwaves with attack ads, blistering each other on immigration, homeland security, taxes and health care.

But it was the issues that Kyl was strongest on that resonated with the majority of voters, according to an Associated Press exit poll.

His supporters said his hard-line stances on immigration and anti-terrorism were the most important factors in their decisions, according to the poll.

Pederson had hoped to tap into voter frustration over the war in Iraq, and often sought to align Kyl with President Bush, who has floundered in polls.

But as critical as he was, Pederson, at times, struggled with cultivating his own vision about how he would handle the war or serve as senator. Kyl, in turn, characterized Pederson, the former chairman of the state's Democratic Party, as inexperienced.

He also criticized Pederson's self-financed campaign, using it to characterize Pederson as a free-spending liberal.

In a recent interview while he was in Tucson, Kyl said Pederson's self-financed campaign had been his greatest challenge this election cycle.

Pederson spent more than $10 million of his own money, which forced Kyl to raise the equivalent, taking time away from the campaign trail.

While he spent much of the last two weeks of the race touring the state, Kyl made only a handful of stops in Southern Arizona. The lack of attention belied his competitive run in Pima County.

For much of the night Kyl led by about eight points. He dominated Maricopa County, and he also stayed close in Democratic Pima County, which essentially sealed his re-election.

About 9:30 p.m. Pederson called Kyl to concede.

On numerous occasions, Pederson said he would need to handily win predominantly Democratic Pima County in order to pull off a statewide victory. As such, he spent much of the last two weeks campaigning in and around Tucson, and he even brought in former President Bill Clinton for a get-out-the-vote rally.

"Pima County had to come out as big numbers for us and unfortunately, it didn't happen," said Mark Bergman, Pederson's campaign spokesman.

He said Pederson would take a vacation before returning to his work as a retail developer.

Kyl is, by his own measure, one of the nation's most conservative senators.

When he returns to Congress his bipartisan skills will be tested with Democrats making national gains.

Libertarian Richard Mack was also in the race.