When Iceland became a founding member of NATO in 1949, it did so on the explicit understanding that Iceland, which has never had a military, would not be expected to establish an indigenous force. Iceland's main contribution to the common defense effort has been the rent-free provision of the "agreed areas"--sites for military facilities. By far the largest and most important of these is the NATO Naval Air Station at Keflavik. Although this base is manned primarily by U.S. forces, it also has a permanently stationed Dutch P-3 aircraft and crew, as well as officers from Canada, Denmark, Norway, and the United Kingdom. Units from these and other NATO countries also are deployed temporarily to Keflavik, and they stage training exercises. Iceland and the United States regard the ongoing U.S. military presence since World War II as a cornerstone to bilateral foreign/security policy. In May 2001, the 50th anniversary of the bilateral agreement was celebrated. Bilateral negotiations regarding implementation of a new "Agreed Minute" governing force structure and operations at the Keflavik base commenced in 2003.

In addition to providing the "agreed areas," the Government of Iceland contributes financially to NATO's international overhead costs and recently has taken a more active role in NATO deliberations and planning. Iceland hosted the NATO Foreign Ministers' Meeting in Reykjavik June 1987 and again in May 2002.

In June 2002, Iceland hosted the Partnership for Peace (PfP) humanitarian exercise "Cooperative Safeguard." This was the third time that Iceland has held this exercise since 1997. The exercise has the distinction of attracting a large number of partner countries, including Russia.