Mr Bush praised Croatia for what he called its transition from communist tyranny to maturing democracy.
Mr Bush told the crowd Croatians should also be recognised for "helping the Afghan people defeat the terrorists and secure their future of liberty".
Mr Bush is due to fly to Russia for talks with President Vladimir Putin later on Saturday.
The meeting is the last in a series of scheduled talks between the two leaders.
Speaking in Zagreb, Mr Bush said Croatians had proved the value of fighting for democracy.
"There are many people who don't appear to understand why it takes so long to build a democracy. You can tell them how hard it is to put in place a new and complex system of government for the first time.
"There are those who actually wonder if people were better off under their old tyranny. You can tell them that freedom is the only real path to prosperity and security and peace."
Mr Bush flew to Croatia after a Nato summit in Romania and spent Friday in talks with its President, Stjepan Mesic.
Croatia and Albania have been invited to join Nato, though neighbouring Macedonia had its bid blocked because of an ongoing row with Greece - Macedonia is also the name of a region in Greece.
The BBC's Helen Fawkes in Zagreb said the transformation of Croatia sent out an important message to other countries in the Balkans.
Mr Bush's meeting with the Russian leader in the Black Sea resort of Sochi later on Saturday follows complaints by Mr Putin at the Bucharest summit against Nato's eastward expansion.
The former Soviet states of Georgia and Ukraine are seeking to become members of the security pact.
And, while the two countries were not offered a Membership Action Plan earlier this week, Nato did leave open the option of taking in the two countries.
Mr Putin leaves office next month, though he is expected to serve as prime minister under President-elect Dmitry Medvedev.
The Russian and American leaders are expected to discuss US plans to site a missile defence system in Eastern Europe.
Russia has strongly criticised the US proposals, which would see interceptor missiles based in Poland and a radar system in the Czech Republic.
Nato countries agreed to back US plans to site a missile defence system in the two countries at the Bucharest summit.
