During his reign, Sheikh Jaber also steered Kuwait through the 1980-88 war between neighbours Iraq and Iran, and violence by pro-Iranian militants who tried to assassinate him in 1985.
He fled to Saudi Arabia in 1990 when Iraqi forces invaded Kuwait but returned after a US-led alliance ended the occupation in 1991.
Sheikh Jaber also oversaw the rehabilitation of oilfields set on fire by the retreating Iraqi troops.
And under his rule, women won the right to vote and run for office.
The late emir was behind the creation of the emirate's Reserve Fund for Future Generations (RFFG), a powerful tool that channeled the state's surplus funds into long-term investments, mostly in Europe and the United States.
Kuwait's cradle-to-grave welfare system for nationals boosted the late emir's standing among the people.
"No one ever said a bad word about him. Friend nor foe," said fire department employee Fahd Al-Diyyan, 35.
The emir was the 13th ruler of a dynasty that has ruled Kuwait for more than two centuries.
Since his health began deteriorating, he delegated most of his public duties to Sheikh Sabah due to the illness of Sheikh Saad.
Simple funeral
Security officials struggled against the dense crowds when the emir's body, wrapped in a Kuwaiti flag and placed in a simple open box, was carried by relatives and aides to a common cemetery 15 kilometers west of the capital.
He was buried in a section reserved for the dead of the ruling Al-Sabah family and the country's martyrs.
Thousands of Kuwaitis and expatriates, some carrying posters of their leader, gathered to pay their respects to their leader.
Women clad in traditional "abayas," or long black robes, wept as the emir's body was lowered in to the ground and covered with earth, in keeping with Muslim tradition.
Many mourners took pictures with camera-equipped mobile phones amid chants of "La Ilah Illa Allah" (there is no God but Allah).
"He is the father of the orphans. He helped every citizen," said Kuwaiti student Dalal al-Utaim, 18.
Dignitaries pay respects
Arab dignitaries, including Jordan's King Abdullah, Egyptian President Hosni Mubarak and Saudi Arabia's King Abdullah, flew to Kuwait to pay their respects.
Iraq's president, Jalal Talabani, also led a delegation to the funeral.
While UN Secretary General Kofi Annan said he was "deeply saddened" by the death.
In a statement Secretary General Annan "extends his heartfelt condolences to the people and Government of Kuwait and grieves together with them."
"Under his wise leadership, Kuwait has achieved a high international standing, made progress towards more political freedom, women's rights and social justice," the statement said.
"During most difficult times he won the praise and gratitude for tirelessly working for restoration of Kuwait's sovereignty and independence.
“Sheikh Jaber al-Ahmad has been a father figure to Kuwaitis and will be remembered for his wisdom, modesty, generosity and kind attitude."
Kuwait has declared a 40-day period of mourning and government offices, banks and the stock market will close for three days.
Flags will be flown at half-mast over government buildings.
New emir ailing
Under the constitution of the oil-rich Gulf state, 76-year-old crown prince Sheikh Saad al-Abdullah al-Sabah, himself ill since undergoing colon surgery in 1997, automatically became the new emir.
"According to the constitution ... and in accordance with the rules of succession, the cabinet calls on the heir and crown prince... as emir of the country," said a cabinet statement read out on state television.
The appointment of Sheikh Saad sent a sigh of relief in Kuwait where the ruling family was plunged into a crisis in recent months over succession.
But Sheikh Saad’s poor health has recently sparked concern about his succession.
Officials say he is likely to be a figurehead while Prime Minister Sheikh Sabah al-Ahmad al-Sabah runs the country, as he has done for the past four years.
No changes
Analysts had expected a smooth transition of power and no change in Kuwait's oil policies and pro-Western outlook.
"The country has been run by (Prime Minister) Sheikh Sabah for years. Policy will remain stable. It will not be affected by any change in the guard," former Oil Minister Ali al-Baghli said.
Kuwait sits on one-tenth of the world's proven oil reserves.
Oil officials said the country would stick to its policy of keeping global markets well supplied, and the OPEC producer’s energy operations have not been affected by the death of its ruler.
"Oil sector projects are proceeding normally, without any impact from the grave calamity which has afflicted Kuwait and its people," KPC CEO Hani Hussein told state news agency KUNA.
Sami Rushaid, who heads KNPC, told KUNA, "The ... death of the emir will not impact the oil refineries or export operations, and they continue at normal levels."
Kuwait is pumping close to its production capacity of 2.7 million barrels per day (bpd).
Farouk al-Zanki, head of Kuwait Oil Co (KOC), which oversees the upstream sector, said exploration operations were also proceeding on schedule.
But he said KOC would shut down for three days to mourn the emir, like all state agencies.
Sheikh Jaber, who ruled for 28 years, is the third elderly Gulf ruler to die in the past 15 months, following the deaths of Saudi king Fahd and UAE president and founder Zayed bin Sultan al-Nahayan.