Speaking Tuesday to the Senate Armed Services Committe he rejected suggestions that the administration had fumbled rebuilding efforts almost three years after the US-led invasion.
Rumsfeld's comments came during testimony on the Pentagon's $439 billion budget request for the coming year.
Contrary to forecasts of senior administration officials before the invasion, Rumsfeld said it would "take decades" for Iraq "to get the infrastructure back to where a modern country would have it."
The senators also questioned Pentagon officials on progress in training Iraqi forces, which the administration says is key for withdrawing US troops.
General Peter Pace, chairman of the Army's Joint Chiefs of Staff, said there still was just one battalion able to operate independently, and 60 capable of taking the lead in operations, with support of US forces.
The Senators generally backed the plan to boost the Pentagon's budget by nearly 7% to $439 billion. In addition, the White House said it would seek another $70 billion this year for the Iraq and Afghanistan wars, and $50 billion early next year.
"It's going to take decades [for Iraq] to get the infrastructure back to where a modern country would have it"
Donald Rumsfeld, US Defence Secretary
That would bring the wars' cost to $440 billion, with costs expected near $500 billion by next year's end.
In unusually harsh criticism, John Warner, a Republican Senator and the committee chairman, said the White House had "failed to bring together all of the resources necessary" to improve Iraq's economy and stem the joblessness that he said was fueling the rampant violence and corruption.
Warner said Paul Wolfowitz, the former deputy defence secretary "opined at one time" that Iraq's oil production would pay for most of its rebuilding costs, but instead, Warner noted, Iraq's "oil production is slipping."
Senator Joseph Lieberman, a Democrat, said he was "troubled by the suggestions" that the White House would not seek new rebuilding money for Iraq on top of the $20 billion so far. "You can cut and run economically as well as you can militarily," he said.
Warner said living conditions must improve through a better infrastructure to stabilize the country, or "it's going to obscure the gains that have been made."
But Rumsfeld said it was up to Iraqis to rebuild their own country to avoid "creating a dependency." Pace said the US government should make various non-military agencies work together more efficiently and deploy personnel overseas to help in rebuilding.
"General, those are nice words. We've been at this thing over two years now," Warner replied.
After the hearing, Warner told reporters he was considering legislation to force cooperation among federal agencies, similar to legislation that integrated the workings of the military branches.
US pressure for a withdrawal or
reduction of troops is growing
Rumsfeld also fended off senators' complaints about his plans to restructure the Army National Guard, which some lawmakers said would amount to a cutback.
"The Army is not cutting the National Guard or Reserves. That rumor is false," Rumsfeld said.
The Pentagon plan had called for reducing the Army National Guard's authorized troop level from 350,000 to 335,000, which is the actual current force.