At a hastily arranged press conference, Mr Bush flatly denied the US-led invasion had stirred up a "hornets' nest" in the Middle East, but he said the US death toll in Iraq was "straining the psyche of our country."
"I hear a lot of talk about civil war. I'm concerned about that, of course," he said.
He signalled that he would neither change course nor flinch from debate about the unpopular war as he campaigns for Republicans running in November's congressional elections.
He said the bulk of US forces would remain until his term ends in January 2009, or until Iraq's government was stable and self-reliant.
"We're not leaving so long as I'm the president. That would be a huge mistake," said Mr Bush.
"Leaving before the job is done would be a disaster," he added.
Now in its fourth year, the war has taken a heavy toll - more than 2,600 Americans have died and many times more Iraqis have been killed. Last month alone, about 3,500 Iraqis died violently, the highest monthly civilian toll so far.
President Bush's approval rating has slumped to the lowest point of his presidency, and Republicans are concerned that they could lose control of Congress because of voters' unhappiness.
"Sometimes I'm frustrated. Rarely surprised. Sometimes I'm happy, you know. But war is not a time of joy. These aren't joyous times. These are challenging times, and they're difficult times, and they're straining the psyche of our country. I understand that," President Bush said.
Democratic Senator John Kerry, Mr Bush's 2004 rival for the White House, quickly fired back: "The American psyche isn’t the problem. The problem is this administrations disastrous Iraq policy."
"We must change course in Iraq. We need to set a date to force Iraqis to stand up for Iraq," Senator Kerry said in a statement that called for US redeployment out of Iraq.
Other Democrats echoed the sentiment.
"Our soldiers in Iraq should transition to a more limited mission focused on counterterrorism, force protection of US personnel and training and logistical support of Iraqi security forces," House Democratic leader Nancy Pelosi said.
Senate Democratic leader Harry Reid said: "Far from spreading freedom and democracy in the Middle East, the Bush administration has watched while extremists grow stronger, Iran goes nuclear, Iraq falls into civil war and oil and gas prices skyrocket. Simply staying the course is unacceptable."
But President Bush attacked opposition Democrats who have called for a timetable for a US withdrawal.
"You know, it's an interesting debate we're having in America about how we ought to handle Iraq. There's a lot of people -- good, decent people -- saying: Withdraw now. They're absolutely wrong," Mr Bush said.
"A failed Iraq would make America less secure," he said. "A failed Iraq in the heart of the Middle East will provide safe haven for terrorists and extremists."
The president forcefully rejected the suggestion that such concerns did not exist before US-led forces toppled Saddam.
"You know, I've heard this theory about, you know, everything was just fine until we arrived and -- you know, the stir-up-the-hornet's-nest theory. It just doesn't hold water, as far as I'm concerned," he said.
"Imagine a world in which Saddam Hussein was there, stirring up even more trouble in a part of the world that had so much resentment and so much hatred that people came and killed 3,000 of our citizens," he said, in a reference to the September 11, 2001 terrorist strikes.