The president had wanted more, but Congress denied him what it called frivolous items, like $9 million to develop a zip code in Iraq; 40 garbage trucks at $50,000 apiece; and $100 million to restore marshland in Iraq.
"With this act of Congress, no enemy or friend can doubt that America has the resources and the will to see this war through to victory," Mr. Bush said at a ceremony in the East Room of the White House.
He was joined by leaders of Congress, as well as Secretary of State Colin Powell and Defense Secretary Donald H. Rumsfeld. He saluted Powell and Rumsfeld for their leadership "during these tough times."
In remarks moments before signing the bill, Mr. Bush said, "Today the United States is making a critical financial commitment to this global strategy to defeat terror. We're supporting our servicemen and women in the field of battle. We're supporting reconstruction and the emergence of democratic institutions in a vital area of the world."
"The American people accept these responsibilities now in our time, so that we will not face far greater dangers in the future," Mr. Bush said.
He said recent attacks in Iraq "have shown the cruelty of the enemy. They're cold blooded, they're heartless."
Mr. Bush signed the bill on a day when two American soldiers were killed near Baghdad and along the Syrian border.
Their deaths brought to 140 the number of U.S. soldiers killed in Iraq by hostile fire since Mr. Bush declared an end to major combat May 1. A total of 114 U.S. soldiers were killed in action before Mr. Bush's declaration.
Mr. Bush thanked Congress for resisting calls to require that the money for Iraq be treated as loans that would have to be repaid by Baghdad. He said it was not appropriate to burden Iraq with "new debt at a moment of new hope."
But back in the U.S, the Iraq bill will push this year's federal deficit, now projected at $475 billion, to well over a half a trillion dollars ($525 billion).
The White House says not to worry.
"The president believes the deficit, where we are right now, is manageable," said White House spokesman Scott McClellan.
But all that spending has the nation's top moneyman worried that the bill will come back to bite Americans. Federal Reserve Chairman Alan Greenspan said the long-term effects of deepening debt "could have notable, destabilizing effects on the economy," and put at risk Social Security and Medicare benefits for retiring baby boomers.
The biggest chunk of the deficit is from the president's tax cuts, crucial, insists the White House, to the economic recovery. But if the president can't get deficits under control going forward, experts say the benefits could collapse.
"It's much like a shot of adrenaline now, but two or three years from now the effect will wear off and the economy in the United States could slow," says William Gross, chief investment officer of PIMCO.
Greenspan did have some good news, saying the economy was poised to start adding jobs and - jobless claims dropped last week to their lowest levels in three years. All the more reason, say economists, to rein in runaway deficits and keep the economy growing.