  We combine the "evolving constants" approach to the construction of
observables in canonical quantum gravity with the Page--Wootters formulation of
quantum mechanics with a relational time for generally covariant systems. This
overcomes the objections levied by Kucha\v{r} against the latter formalism. The
construction is formulated entirely in terms of Dirac observables, avoiding in
all cases the physical observation of quantities that do not belong in the
physical Hilbert space. We work out explicitly the example of the parameterized
particle, including the calculation of the propagator. The resulting theory
also predicts a fundamental mechanism of decoherence.
