He took the oath of office at noon (1700 GMT) on Thursday, in a televised ceremony from the steps of the US Capitol under an unprecedented security blanket, with both well-wishers and protesters looking on.
Bush, 58, was sworn in by ailing Chief Justice William Rehnquist in the 55th US presidential inauguration and the first since the 11 September 2001 attacks in the US that transformed his time in office.
Pennsylvania Avenue, which links the White House to the US Capitol, was adorned with US flags and bunting and lined with cheering supporters as well as demonstrators clutching signs such as "in fighting monsters, we are becoming one".
Bush used his speech, in which he mentioned neither Iraq nor terrorism by name, to argue that winning the global "war on terror" required spreading freedom around the world.
Protesters lined Pennsylvania
Avenue at Bush's inauguration
"We are led, by events and common sense, to one conclusion: The survival of liberty in our land increasingly depends on the success of liberty in other lands. The best hope for peace in our world is the expansion of freedom in all the world," he said.
While Bush has repeatedly said elections scheduled for 30 January in Iraq are a beacon of hope in that strife-torn country, the closest he came to referring to the war there was to say: "Because we have acted in the great liberating tradition of this nation, tens of millions have achieved their freedom."
Following in tradition, he gave few specifics, something left to his 2 February State of the Union address.
Dr Edmund Ghareeb, professor of international relations at the American University in Washington DC, told Aljazeera: "Bush's second term will be mostly focused on protecting US interests particularly in the Middle East, protecting Israel and guaranteeing its qualitative superiority.
"With regard to Arabs and Palestinians, Bush's second term will concentrate on promulgating democracy as understood by Washington and the concept of a market economy.
"America will not impose our own style of government on the unwilling. Our goal instead is to help others find their own voice, attain their own freedom, and make their own way"
US President George Bush
"But Washington is still facing many challenges; the foremost is the Iraqi crisis which Washington has failed to tackle and US relations with allies whose opinions have not been considered, a matter that would force the United States to reconsider its policy."
Bush had words for those concerned about potential US military action, saying spreading freedom was "not primarily the task of arms, though we will defend ourselves and our friends by force of arms when necessary".
And, in response to some critics who say Washington is forcing its values on others, Bush pledged that "America will not impose our own style of government on the unwilling".
"Our goal instead is to help others find their own voice, attain their own freedom, and make their own way."