Spending on weapons around the world topped $1 trillion (£560bn) for the first time in 2004, a new report says.
The US "war on terror" is the main driver behind the spending boost
A study by the Stockholm International Peace Research Institute (Sipri) found that countries around the world spent $162 on weapons for each person alive.
The US alone accounted for 47% of the global total, mainly because of soaring spending on its "global war on terror".
Arms companies were benefiting from the demand, with sales at the top 100 firms up 25% in 2003 on the year before.
The pace of mega-mergers in the arms trade in recent years had slackened, Sipri said, but had left major military suppliers comparable in size and influence to top multinational corporations.
Driven by the US
According to the 2005 yearbook published by Sipri, a well-respected think-tank on war and peace studies, the total spending on weapons in 2004 grew 8% to $1.035 trillion - the highest dollar value yet.
Adjusted for inflation, the figure falls just 6% below the all-time peak of spending in 1987-88, the last gasp of the Cold War.
The US was the primary driver behind the 2004 growth as the massive budget allocations on fighting in Iraq and Afghanistan and rearmament elsewhere were spent.
In all, its extra spending on the "war on terror" between 2002 and 2004 - some $238bn - exceeded the combined military spending of the developing world including China.
"The main explanation for the current level of, and trend in, world military spending is the spending on military operations abroad by the US and to a lesser extent its coalition partners," the report said.
But other countries too were rearming rapidly, notably in the Middle East.
China and India were key recipients of conventional weapons in 2004, Sipri found. Both relied extensively on Russia as a supplier, but were now keen to diversify their spending.
The report went beyond military spending to look at trends in military activity and warfare.
China is keen to look further afield to boost its forces
It identified 19 conflicts which had cost more than 1,000 lives in 2004. All but three - against Al-Qaeda, in Darfur and in Iraq - were more than a decade old, Sipri said.
The institute also noted the perception that unilateral action was overtaking multi-nation measures to deal with global security issues.
"Many actions of the USA and other 'northern' powers since 2001 seem rather to have polarised attitudes further" in the face of transnational threats," the report said.
But it also noted that many other states were seeking to pool sovereignty or work through systems of international regulation - and the limitations the US experienced in working in Iraq without institutional backing.
"It would be hasty to assume that the unilateral rather than the multilateral approach to wielding power will shape the globe's future," the report said.