Monday's proposal would raise military expenditure by 4.8% to $419.3 billion and add 8% to the budget for homeland security.
At the same time, non-defence spending not mandated by current law, known as discretionary spending, would be cut 1%, budget documents showed.
"It is a budget that sets priorities. Our priorities are winning the war on terror, protecting our homeland, growing our economy," Bush said at a cabinet meeting.
Reducing the deficit
The deficit for the fiscal year starting 1 October would be reduced under the proposal to $390 billion, or 3% of gross domestic product (GDP) from a projected 427 billion (3.5% of GDP) in the current fiscal year.
The deficit is projected to decline to $233 billion, or 1.5% of GDP, by fiscal 2009 under the spending outline that aims to fulfil Bush's pledge to cut the deficit in half as a percentage of GDP.
However, the budget plan sent to Congress is merely a blueprint of White House spending plans. A plan must be approved by Congress, which also decides on specific funding plans each year.
Democrats immediately attacked the plan.
Democrats say the plan does not
fully account for military spending
House Democratic leader Nancy Pelosi said the plan excludes many programmes that will be sought by the administration -including an estimated $80 billion for Iraq and $4.5 trillion in coming years for reorganising social security.
"The two issues that dominated the president's State of the Union address - Iraq and social security - are nowhere to be found in this budget.
"We know that the cost of military operations in Iraq and Afghanistan will cost billions this year, but those costs are not accounted for in this budget," she said.
On the wider international front, Bush earmarked $3.2 billion for fighting Aids worldwide in 2006 and $3 billion for the Millennium Challenge programme for developing countries.
But it was the domestic repercussions that most galled the opposition: "This budget will mean poor people get poorer. But the rich are still getting richer, because $1.8 trillion in tax cuts for the wealthy are still part of President Bush's plan," said Democratic Representative from Columbia, Walter Fauntroy.