In a speech on "hard power" at the National Defense University, Gates also said the US military needs to strike a better balance between spending on high-tech weaponry and meeting the requirements for fighting low-tech wars in broken states.

"Let's be honest with ourselves," he said in remarks prepared for delivery. "The most likely catastrophic threats to our homeland -- for example, an American city poisoned or reduced to rubble by a terrorist attack -- are more likely to emanate from failing states than from aggressor states."

"The kinds of capabilities needed to deal with these scenarios cannot be considered exotic distractions or temporary diversions. We do not have the luxury of opting out because they do not conform to preferred notions of the American way of war," he said.

The speech was the latest in a series in which Gates, a former CIA analyst, has sought to jar a slow-to-change military and government into rethinking its approach to national security challenges.

In previous speeches, he pressed the military to focus on conflicts in Iraq and Afghanistan, chiding it for "next-war-itis."

He also has advocated greater reliance on "soft power," such as diplomacy and economic influence, over "hard" military power.

On Monday, Gates said the United States remains the strongest military power on earth.

"But not every outrage, every act of aggression, every crisis can or should elicit an American military response, and we should acknowledge such," he said.

"Be modest about what military force can accomplish, and what technology can accomplish," he said.

He said advances in precision weapons, sensors, information and satellite technology had led to extraordinary gains, enabling a drone piloted in Nevada to attack an insurgent pick up truck in Mosul, for instance.

But the human dimension of warfare "is inevitably tragic, inefficient, and uncertain," he said.

"Look askance at idealized, triumphalist, or ethnocentric notions of future conflict that aspire to upend the immutable principles of war: where the enemy is killed, but our troops and innocent civilians are spared.

"Where adversaries can be cowed, shocked, or awed into submission, instead of being tracked down, hilltop by hilltop, house by house, block by bloody block," he said.

In a question and answer session, Gates said growth in US military spending is "probably a thing of the past" and the Pentagon would be fortunate if it keeps pace with inflation.

"But in terms of the kind of deep cuts that followed the end of the Cold War, I would hope that we've gotten smarter than that," he said.

He spoke just before Congress rejected a 700 billion dollar bank bail-out plan, sending stocks plunging.

Gates acknowledged in the speech that the United States, though militarily dominant, faces challenges from other states, saying the Russian invasion of Georgia last month was a "reminder that nation states and their militaries do still matter."

"Both Russia and China have increased their defense spending and modernization programs to include air defense and fighter capabilities that, in some cases, approach our own," he said.

"In the case of China, investments in cyber and anti-satellite warfare, anti-air and anti-ship weaponry, submarines and ballistic missiles could threaten America's primary means to project power and help allies in the Pacific, our bases, air and sea assets and the networks that support them.

"This will put a premium on America's ability to strike from over the horizon, employ missile defenses, and will require shifts from short range to longer range systems such as the next generation bomber," he said.

At the same time, however, Gates said he regarded China as a competitor, not an adversary, and that its investments in the military were "not disproportionate" to the size of its economy.

"I don't think China is an enemy. I think, if we pursued the wrong policies, we could make them into one. And I think that would be a serious mistake," he said.

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