The rainbow flag of Pride Week is flying over Toronto City Hall, signalling the start of the city's annual week-long celebration of gay and lesbian culture.

The event, now in its 26th year, began with a ceremony attended by Mayor David Miller and a similar event at York University.

The theme of Pride Week 2006 is "Fearless."

Canadian peace activist James Loney and his partner Dan Hunt will be among those honoured at a gala dinner Tuesday night celebrating the community's bravest individuals.

Loney was held captive in Iraq for four months before being rescued by coalition forces in Baghdad in late March.

Organizers said he and his partner endured much hardship as they had to conceal their sexual orientation during the ordeal for fear of reprisal from Loney's captors.

The couple embodies this year's "fearless" theme, organizers said. Ontario Premier Dalton McGuinty will present the award.

Toronto's Pride festival is one of the largest of its kind around the world, with about one million people expected to attend.

"It really does good for the community," retailer Mark Ouimet said Monday. "Because we're really not a big shopping area, so when we get a lot of people down here it's great to just show them what we've got."

While businesses in the Church and Wellesley Street neighbourhood benefit directly during Pride Week, it is estimated that the festival generates an estimated $70 million for Toronto's economy.

But some entrepreneurs say changes to the way Pride Toronto is marketed would help their businesses cash in. Almost 70 per cent of the people attending Pride Week activities are from the Toronto area.

Bed and Breakfast operator Rick Tremaine would like to see more tourists drawn to the city.

"We're being beaten-up by the marketing dollars that are being put in by Philadelphia, Key West, by every other destination in the U.S. who knows how to market themselves," Tremaine said.

City councillor Kyle Rae said marketing efforts "geared towards tourism and the gay community" are starting to pay off. He said other downtown hotels are full as people flood into the city.

Celebrations continue all week, ending with a grand finale parade on Sunday at 2 p.m.

With a report from CTV's Desmond Brown