Obama was announcing the initiative during a visit to Warsaw, Poland, his first stop on a three-country swing through Europe.
The White House said the funding would be used to increase military exercises and training missions, as well as rotations of air and ground forces, on the continent.
Officials said Obama was also seeking to ramp up US Navy participation in NATO deployments in the Black and Baltic Seas, plus working to boost the military capacity of non-NATO countries that sit on Russia's border, including Ukraine, Georgia and Moldova.
"It is a commitment that is particularly important at this time," Obama said, standing in front of American and Polish F-16 fighter jets.
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The president's visit to Warsaw coincides with the 25th anniversary of Poland emerging from communism. Obama also planned to meet with Group of 7 leaders in Brussels before heading to France to mark the 70th anniversary of the D-Day invasion that eventually led to Allied victory in World War II.
After viewing the F-16 fighters, Obama headed to Warsaw's Belweder Palace for a meeting with Polish President Bronislaw Komorowski. Following their private talks, the two leaders were to hold a news conference.
US Secretary of State John Kerry was joining Obama for many of his events in Warsaw. During a separate meeting today with Poland's foreign minister, Kerry said the crisis in Ukraine presents "a new moment of challenge for all of us."
"Events in Ukraine have unfortunately unleashed forces that we had all hoped had been put away, were behind us, and so it requires new vigilance and it requires clear commitment," Kerry said.