The decision was announced on Wednesday as the president made a rally-the-troops speech on Iraq. It essentially means that Pakistan will join an exclusive club of countries that enjoy a privileged security relationship with the US.
"I hereby designate the Islamic Republic of Pakistan as a major non-NATO ally of the United States for the purposes of the act and the Arms Export Control Act," Bush said in a statement released by the White House.
The announcement came despite US concerns about nuclear proliferation by the father of Pakistan's atomic programme, Abd al-Qadir Khan, and followed a finding by the official probe into the 11 September 2001 attacks that Islamabad had helped Afghanistan's Taliban government shelter Usama bin Ladin.
"I hereby designate the Islamic Republic of Pakistan as a major non-NATO ally of the United States for the purposes of the act and the Arms Export Control Act"
US President Bush
Major non-NATO allies, including Argentina, Australia, Bahrain, Egypt, Israel, Japan, Jordan, Kuwait, Morocco, New Zealand, the Philippines, South Korea and Thailand, are granted significant benefits in the area of foreign aid and defence cooperation.
Major non-NATO allies are eligible for priority delivery of defence material and the purchase, for instance, of depleted uranium anti-tank rounds.
They can stockpile US military hardware, participate in defence research and development programmes and benefit from a US government loan guarantee programme, which backs up loans issued by private banks to finance arms exports.
The designation does not afford major non-NATO allies the same mutual defence guarantees enjoyed by members of the North Atlantic Treaty Organisation.
The step, seen as a reward for Pakistan's support of the so-called war on terrorism, came as US special forces are leading the hunt along Pakistan's border with Afghanistan for remnants of al-Qaida - possibly including bin Ladin - as well as Taliban fighters that sheltered him.
Pakistan has become a key US ally since the 11 September attacks.
It dropped its support for the Taliban, allowed US troops to use its air bases and intelligence for the campaign to oust the Taliban, and arrested more than 500 suspected al-Qaida members.