President Bush's Democratic critics have accused him of leaving the US isolated and worse off.
Mr Bush was accused of creating his own Axis of Evil
House of Representatives Democrat leader Nancy Pelosi said resources had been stolen from education and health to pay for the Iraq campaign.
Candidates for the party's presidential nomination went on the attack after Mr Bush's State of the Union speech.
President Bush insisted that his foreign policies had made Americans - and the world - safer.
The State of the Union speech, the fourth of his presidency, is being seen as Mr Bush setting out his case for re-election in November, before a challenger emerges.
In some key points of his speech, Mr Bush said:
- Al-Qaeda network was being hunted around the world and "terrorists" will be brought to justice
- Saddam Hussein had been removed from power and the coalition was now working to prepare Iraq for full sovereignty
- North Korea and Iran must not be allowed to possess nuclear weapons
- The US economy has weathered recession, terror attack, recession and corporate scandals
- Tax cuts, due to expire at the end of the year, should be made permanent
- Constitutional amendment might be sought to block gay marriages
"America this evening is a nation called to great responsibilities. And we are rising to meet them," Mr Bush told a joint session of Congress watched on television by millions of Americans.
The BBC's David Bamford says that many Republicans have described the president's performance as effective and robust, but it will do little to unite the nation around a common purpose.
Ms Pelosi, in the Democrats' official reply to his speech, said Mr Bush had led the US into war in Iraq based on unproven assertions, and incurred huge costs now being met by American taxpayers.
"He has pursued a go-it-alone foreign policy that leaves us isolated abroad and that steals the resources we need for education and health care here at home," she said.
"America must be a light to the world, not just a missile," she added.
Wesley Clark, a leading presidential hopeful, compared the administration to the Axis of Evil, a phrase Mr Bush coined himself in a previous address to describe states threatening the US.
"It's an axis of fiscal policies that threaten our future... foreign policies that threaten our security... and domestic policies that put families dead last," he said in a statement.
Senator John Kerry meanwhile, fresh from a surprise victory in Monday's Iowa Democratic caucus, accused Mr Bush of doing nothing while the US lost more jobs than at any time since the Great Depression in 1929.
Mr Bush focused on the war on terrorism he launched following the attacks on New York and Washington, saying it was far from over.
"Twenty-eight months have passed since September 11, 2001 - over two years without an attack on American soil - and it is tempting to believe that the danger is behind us," Mr Bush said. "That hope is understandable, comforting - and false."
STATE OF THE UNION
Constitution requires that president "shall from time to time give to the Congress information of the State of the Union, and recommend to their consideration such measures as he shall judge necessary"
Thomas Jefferson objected to making address in public, saying it was too much like an imperial or king's speech. Woodrow Wilson re-introduced the public address 100 years later
First broadcast in 1923, first televised in 1947 and moved to a prime time slot in 1960s
The president urged Congress to renew controversial anti-terrorism laws that critics say damage civil liberties.
Mr Bush said the use of force in Afghanistan and Iraq had paid dividends elsewhere, persuading Libya to abandon its programme to develop weapons of mass destruction.
Taking a sideswipe at opponents of the Iraq invasion, Mr Bush said: "America will never seek a permission slip to defend the security of our country."
Mr Bush pledged that despite continuing attacks on US-led occupying forces in Iraq, they would remain in the country to oversee a transition to democracy.
Mr Bush also emphasised his domestic agenda, with an upbeat assessment of the strength of the US economy.
Much of his speech focused on policies such as trying to improve school standards, extending access to prescription drugs for senior citizens, and immigration reform.
He insisted that the US economy was growing stronger, partly as a result of his tax cuts.
Mr Bush also appealed to his conservative support base by urging sexual abstinence as a way of cutting sexually transmitted diseases among young people.
He signalled his support for a constitutional amendment outlawing gay marriage, vowing to "defend the sanctity of marriage".