Russian President Dmitry Medvedev has said a new arms race could begin in the next decade if Nato and Moscow fail to agree on a joint missile shield.
In his annual speech to the nation, he said he had advocated a "fully fledged joint mechanism of co-operation" at a recent Nato-Russia summit.
On domestic issues, Mr Medvedev argued for families of three children or more to stem Russia's population decline.
Confounding expectations, he did not talk about his own political future.
With less than two years to the next presidential ballot, many believe his powerful predecessor, Vladimir Putin, will seek to return to the Kremlin in his place.
Mr Putin, who was among the audience for the speech, has been serving as prime minister since leaving office in 2008.
Some political analysts argued that Mr Medvedev's speech on Tuesday was so lacklustre, he clearly had no ambitions for re-election.
"I did not feel the fervour and ambition of a person who is going for a second term," Olga Kryshtanovskaya told Reuters news agency.
"This is not the start of something new but the conclusion."
After the Nato-Russia summit in Lisbon earlier this month, Nato chief Anders Fogh Rasmussen announced that Russia had agreed to co-operate on Nato's programme to defend against ballistic missile attacks.
"For the first time the two sides will be co-operating to defend themselves," he said.
On Tuesday, President Medvedev said a joint shield would combine "the potentials of Russia and Nato and ensure the protection of all European countries from missile threats".
"I would like to say openly in this hall that over the next decade we are facing the following alternative: either we reach an agreement on missile defence and create a fully fledged joint mechanism of co-operation or, if we fail to reach a constructive agreement, a new round of the arms race will start and we shall have to take decisions on the deployment of new strike equipment," he said.
"It is quite obvious that this scenario would be very difficult."
Experts say Russia wants to be fully integrated in any missile shield, not on the margins, the BBC's Richard Galpin reports from Moscow.
The question is how far Nato is prepared to share information and command and control systems, our correspondent notes.
Three children or more
Warning that the demographic crisis of the 1990s was a challenge to the nation, Mr Medvedev said action should be taken to encourage larger families.
"In the next 15 years we will feel the demographic effects of the 1990s when the birth rate was low," he said.
"This is a serious threat. It is a challenge to our whole nation. According to experts, a good way to get over the demographic crisis is to radically increase the number of families with three or more children."
He proposed awarding a plot of land for building a house to each family on the birth of their third child.
On education, he said it was unacceptable for teachers to lag behind their own pupils in their knowledge of information technology.
Russia's ongoing struggle with corruption was also addressed by Mr Medvedev who said law enforcement agencies and other government bodies had, on occasion, been linked directly to organised crime.
Fines, he said, might be a more effective way of fighting bribe-takers than jail sentences.
"Experience shows that even the threat of imprisonment for up to 12 years does not deter bribe-takers," he noted.
Mr Medvedev said Russia's budget deficit needed to be lowered if the country was to develop effectively.
Russia is running a budget deficit of 2.1% of GDP though the figure is expected to rise to 4.6%, the Associated Press news agency reports.
Mr Medvedev said the aim was to reduce annual inflation to 4-5% over three years. It currently stands at 7.4%.
While the economic situation was "complicated", Mr Medvedev said there were encouraging signs.
Unemployment had fallen from seven million people to five since "the peak of the crisis" and the country's sovereign debt was "minimal in size", he said.
People's real income had also risen by 5% over the past year.
The Russian leader also talked up technological advances, saying that there were now 11 Russian systems in the world's Top 500 supercomputer rankings.
The performance of Russia's Lomonosov computer would, he said, increase by 2.5 times next year, making it "the most powerful machine in the world".
China currently leads the Top 500 list, followed closely by the US, Japan and EU states.