Just over half a century ago, the heads of state and government of 12 countries from both sides of the Atlantic came together at a time of great uncertainty to form the North Atlantic Treaty Organisation. In the process, they pledged themselves to their common defence and committed the necessary resources to meet the security challenges of their time.

In the wake of the Second World War and in the face of the Soviet threat, they considered security to be the most valuable of commodities. But times have changed and after so many years of peace and prosperity it has become easy to take security for granted in the West. This complacency is dangerous. For the key to the peace and prosperity we have become accustomed to enjoying remains the investment we make in our security.

The challenges we face today are not as immediately obvious as the threat posed by the Soviet Union during the Cold War. But they are equally real and, if anything, even more insidious. Increased instability is the most obvious challenge. Regions such as the Caucasus, Central Asia, North Africa and the Middle East are all going through political and economic transitions of historic dimensions. Even if these changes ultimately lead in the right direction, only the most blinkered optimist would argue that the process of change will take place without major convulsions

Whereas geography once isolated Europe and North America from the fall-out of instability in other parts of the world, this is no longer the case today. Increasingly, we must expect far-away conflicts to spill over into our societies in the form of migration, rising numbers of asylum seekers and smuggling, of humans, drugs and weapons.

We must also expect more terrorism, more failed states and more proliferation of weapons of mass destruction. The terrorist attacks against the United States of 11 September 2001 were a watershed. In the past, terrorists have sought to maximise publicity while minimising the number of victims in the interest of promoting a particular political agenda. Now, however, a special breed of terrorist has come to the fore, driven not only by unachievable aims, but also by fanatical extremism and the urge to kill in large numbers. It is difficult to imagine how this genie might be returned to its pre-9/11 bottle.

The ideal haven for today's terrorists is the failed state where they are able to operate with impunity. Even in an era of globalisation, the state remains the central organising principle of modern civilisation. But not every state is sustainable. During the past decade, several, including Afghanistan, have collapsed and fragmented into regions, run by warlords. Others risk a similar fate in the years to come.

In spite of the efforts of diplomats and counter-proliferation experts, the spread of weapons of mass destruction will be a defining security challenge of this century. And the ultimate threat to our societies will emerge should weapons of mass destruction end up in the hands of terrorists. Here, the sinister combination of rogue states developing the weapons and terrorists ready and willing to use them is particularly worrying.

Solutions to these challenges are by no means purely military and NATO is clearly not the only institution that must adapt to meet them. That said, military capability translates into political credibility and is the crucial underpinning of our safety and security. From dealing with regional conflicts to terrorism, from Kosovo to Afghanistan, today's security environment places new demands on our military forces and obliges us to put stronger emphasis on the long-range application of force, deployability, sustainability and effective engagement.

The Alliance needs capabilities for the future, not for the past. We need more wide-bodied aircraft, and fewer heavy tanks. We need more precision-guided weapons, deployable logistic support troops, ground-surveillance systems, and protection against chemical and biological weapons. We need forces that are slimmer, tougher and faster, forces that reach further, and can stay in the field longer. Such capabilities cost.

There are some encouraging signs that Europe has woken up to the problem. The decade-long decline in defence spending has been halted in many European countries, and some - France, Luxembourg, Norway and Portugal, as well as the Czech Republic, Hungary and Poland - now project real growth in defence expenditure. The United Kingdom has also announced budget increases. But the fact remains that many European Allies still suffer from a "zero-growth budget" mentality that restrains their necessary military transformation.

The United States, by contrast, is engaged in a fast-paced military transformation - and is prepared to pay for it. As a result, the capabilities gap across the Atlantic is growing, with all its negative implications for interoperability, for effective coalition operations, and, ultimately, for maintaining a common security outlook. Concern about US unilateralism risks becoming a self-fulfilling prophecy unless Europe makes a more equal contribution to our common security. This is not because the United States wants to act alone but because Europeans do not have the capacity to cooperate effectively with US forces.

Even without major increases in defence budgets, it is possible to build greater capabilities - through reprioritisation, through role specialisation and through multinational cooperation. There are also gains to be made via innovative schemes for procurement and acquisition, such as leasing certain assets. And increased defence industrial cooperation both within Europe and between the two sides of the Atlantic will contribute to building more and greater capabilities for the same money.

The Prague Summit should be a decisive milestone towards changing the output from defence. I want nations to make clear commitments to provide specific capabilities within defined timeframes and I want the aggregate of these new commitments to represent a significant breakthrough towards filling the gaps in critical areas, such as strategic lift and air-to-air refuelling. This is not a question of economics or procurement, or even of military judgement. It is a matter of political will. That is why it is appropriate to ask the Alliance's heads of state and government to address the issue, and I am confident that they will.

The formula that NATO's founding fathers committed themselves to met with historically unprecedented success and successive generations have benefited from their foresight. In just over a month's time, today's leaders will have the opportunity to demonstrate the same vision. Like the statesmen in the late 1940s, they must commit themselves to the necessary security investment on behalf of their own generation as well as the generations to come.