An observance is (1) the act of complying with rule, custom, or law, (2) the act of celebrating a holiday or other ritual occasion, or (3) a customary rite or ceremony. Observation is the corresponding noun for all senses of observe not related to rules, holidays, rituals, and ceremonies.
Examples
Observance
It recommended that clearing firms oversee traders’ observance of those rules. [Financial Times]
The CPR class was a part of Montefiore’s observance of American Heart Month. [New York Daily News]
Observation
One was treated and released but one remains in hospital under observation. [CBC.ca]
Without any hard evidence, however, we’ll treat this observation much as we would a UFO sighting. [The Australian]
But the technique requires immaculate planning, precise timing and careful observation. [Los Angeles Times]