India and US have signed a 10-year agreement to strengthen defence ties between the two countries.
Mr Mukherjee and Mr Rumsfeld signed the agreement
The landmark agreement will help facilitate joint weapons production, co-operation on missile defence and the transfer of technology.
Indian Defence Minister Pranab Mukherjee and US Defence Secretary Donald Rumsfeld signed the agreement.
There has been a significant transformation in relations between the two countries in recent years.
The agreement was signed during Mr Mukherjee's visit to the US - his first since assuming his post last year.
"The United States and India have entered a new era," a statement issued after the signing of the agreement in Washington said.
"We are transforming our relationship to reflect our common principles and shared national interests."
According to AFP news agency, the statement said the ministers agreed to set up a "defence procurement and production 'group' to oversee defence trade, as well as prospects for co-production and technology collaboration".
"Today, we agree on a new framework that builds on past successes, seizes new opportunities and charts a course for the US-India defence relationship for the next 10 years," the statement said.
The statement said that the two nations had advanced to "unprecedented levels of cooperation".
Mr Singh is due to hold talks with President Bush in July
The defence pact came ahead of a three-day visit by Indian Prime Minister Manmohan Singh to the US in July.
In a speech in Washington on Tuesday, Mr Mukherjee urged the US to lift curbs on nuclear technology transfers to India.
The US imposed the restrictions in the wake of India's nuclear tests in 1998.
Economic ties have grown between the two countries, once on opposite sides of the Cold War fence, and the US is now India's biggest trading partner.
The two countries have also overseen increased military ties, holding joint exercises and expanded civilian, space and hi-tech contacts.