The US leader met Alfred Moisui, the president, as well as greeting troops who have served in Iraq and Afghanistan.
Later on Sunday, Bush arrived in Sofia for his first visit to Bulgaria.
Bulgaria is the final stop on a European visit which has also taken the US president to the Czech Republic, Poland, and Italy in addition to the G8 summit in Germany.
Many Albanians hope Bush's visit will give a boost to the ethnic Albanian majority in neighbouring Kosovo, which is pushing for independence from Serbia.
|Bush received the National Flag Order medal|
from Moisui, his Albanian counterpart EPA]
The US and EU support an independent Kosovo, which is currently administered by the UN, while Serbia, backed by its ally Russia, opposes it.
The US has been particularly popular in Albania since 1999, when then president Bill Clinton pushed for military intervention in Kosovo.
In Tirana, US flags were flown alongside welcome banners and huge posters of a smiling president.
A 21-gun salute also boomed out in welcome.
The scenes were in contrast to the large protests faced by Bush on his visits to Germany, for the G8 summit, and in Italy, for a meeting with Pope Benedict XVI.
Huge banners proclaimed "Proud to be Partners," and billboards read "President Bush in Albania Making History".
Red-white-and-blue paper top hats with stars on top were passed out to well-wishers.
The streets were nearly empty as the US leader as many people were inside watching the arrival live on all of Albania's television channels.
The city will name a street after Bush, and Albania has put his portrait on commemorative stamps.