North Korea, which test fired a missile over Japan into the Pacific Ocean in 1998, is reportedly preparing another test, this time possibly putting parts of the United States within range.
Mr Bush also answered European concerns about human rights violations by saying he would like to close the Guantanamo Bay prison camp for terror suspects.
But the US President that a way must first be found to send inmates home or put them on trial.
There was tight security for Mr Bush's visit, but that didn’t deter about 1,200 demonstrators in the north of Vienna who chanted "Bush Go Home!" and "Mass Murderer".
After the summit, thousands of people marched peacefully through the centre of Vienna to protest against Mr Bush's policies. Police said 15,000 had attended the march. A number wore T-shirts marked "Bush: Terrorist No. 1".
Protesters shouted "Bush, Bush go home" and "Don't touch Iran". One group carried a banner depicting a bomb and the words "Policy of peace?".
Responding to the first demonstration Mr Bush, the first US president to visit Austria since Jimmy Carter in 1979, said "it was absurd for people to think that we're more dangerous than Iran."
"We're a transparent democracy. People know exactly what's on our mind. We debate things in the open. We have a legislative process that's active," he said.
North Korea warned
As well as warning Iran Mr Bush urged North Korea not to go ahead with a planned missile test that has sharply raised international tensions.
He cautioned Pyongyang to honour past international agreements, came as North Korea offered the United States talks on its launch plans in an indication that it might put off the flight test.
"The North Koreans have made agreements with us in the past and we expect them to keep their agreements, for example on test launches," Mr Bush said.
"This is not the way you conduct business in the world," he added.
He said the issue must be dealt with in six-party talks on North Korea and he was "pleased" the Chinese government was speaking out against any test.
On Guantanamo, Bush said he wanted the camp closed. Mr Schuessel said Mr Bush had brought up the subject of Guantanamo, without being asked by European leaders.
"I would like to end Guantanamo," Mr Bush said, but cautioned that while he had explained to the EU leaders the US desire to send the prisoners home, there were some "who need to be tried in US courts."
He described these inmates as "cold-blooded killers" who will "murder someone if out on the street" and said he was waiting for the US Supreme Court to determine how they would be tried. We're working on the issue," Mr Bush said.
After the summit Bush, his wife Laura and US Secretary of State Condoleeza Rice flew to Bucharest, where the US president will attend events to commemorate the 50th anniversary of the 1956 Hungarian uprising against communism.