With growing worry over the spread of militancy and failing states on their borders, NATO members last year saw the first annual growth in defence spending relative to the size of their economies since 2009.
Defence spending by European NATO states inched up for the first time in seven years in 2016, the military alliance said on Monday.
Defence spending by NATO's European allies has seen a steady decline since the Cold War ended. But Europe has sought to reverse the falling numbers since its neighbour Russia annexed the peninsula of Crimea from Ukraine in 2014 by setting the target for defence spending at 2 percent of each member state's economic output.
The average figure on defence spending for NATO members in 2016 stood at 2.43 percent versus 2.40 percent in 2015. But overall spending still remained below the 2 percent threshold US President Donald Trump said was crucial to achieve.
"There has been progress but the job is far from done, we still have no fair burden-sharing within our alliance," NATO's Secretary General Jens Stoltenberg said. "It is realistic that all allies reach the goal of two percent."
The decision by Britain, a leading military power on the continent, to leave the European Union has also galvanised the Europeans to do more on defence on their own. Of the 28 EU states, 22 are also in NATO. Europe was last at two percent in 2000.
Only four European NATO members - Estonia, Greece, Poland and Britain - met the two-percent standard last year.
France came in at 1.79 percent, a tad below 2015, while Germany stood at 1.2 percent, just up from 1.18 in 2015.
Stoltenberg said Romania was due to meet the target this year, with Lithuania and Latvia expected to follow in 2018.
President Trump made NATO states in Europe nervous when he criticised the alliance as "obsolete" during the election campaign. The US president then went on to suggest he could make US commitment to their security conditional on them meeting the alliance's target of defence spending.
Trump has since reaffirmed support for NATO, but insisted Europeans must "pay their fair share." His aides have said Trump wants to see progress on that by the end of this year and that Washington could otherwise "moderate" its support.
"This is not just about a call from the Unites States and President Trump ... It is in Europe's best interest to spend more on defence," Stoltenberg said. "We have a long way to go, but at least after years of decline, we are now starting to see an increase."
"When you are reducing spending at times of easing tensions, we have to be able to increase spending when tensions are increasing," Stoltenberg added.
NATO said the US defence spending last year stood at 3.61 percent of its Gross Domestic Product, compared to 3.58 percent in 2015. That compares to 1.47 percent for NATO's European allies last year and 1.44 percent the year before.
Europe's low expenditure has long been a sore point for the US, which provides the lion's share of the alliance funds. In 2016, the US economy represented just below a half of the alliance's combined economic output, but nearly 70 percent of its defence expenditure, NATO's annual report showed.