Pakistan Prime Minister Nawaz Sharif, army chief Raheel Sharif and several top notch leaders and security officials attended a ceremony to remember the victims.
At least 150 people, including 136 students, were killed when gunmen in uniforms of security personnel stormed the army-run school on December 16th, 2014.
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Relatives of the attack victims participated in a parade holding pictures of their loved ones.
Rallies and demonstrations were held in other parts of the country to pay tribute to the victims.
The attack shocked the country scarred by nearly a decade of insurgency. Students and parents complain of ongoing trauma for which many are still receiving psychological help.
"Everyone is traumatised inside the school," said Mehran Khan, a 14-year-old student at the school said. "We are all thinking that there will be another attack."
Kazim Hussain, a nutritionist and businessman whose son was shot twice but survived, can still experience the horror of searching for his son in the 30 to 35 beds that were randomly strewn across the emergency ward of a hospital on that fateful day.
"I wish no-one ever has to face a scene like that," he told BBC.
Waheed Anjum, 18, was shot three times during the attack - once in each arm and once in the chest.
"I can't move my arms properly. I can't lift weights," he said.
Relatives of the victims will be given medals by the army leadership. Survivors of the massacre will also be awarded medals for their bravery.
The attack prompted the government to take several measures, including lifting a moratorium on the death penalty.
Pakistan earlier this month hanged four men linked to the Peshawar attack.
After the attack, all schools were ordered to rapidly build walls and extra defences. The authorities at the Peshawar army school carried out massive renovations in an attempt to remove the memory of the attack.
The army also decided to intensify the Zarb-e-Azb operation which was launched in June, 2014, to wipe out militancy.
Last week, the army said that 3,400 militants have been killed in the operation.
But critics have voiced concerns over a failure to tackle the long-term causes of the violence.
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