Terms were not disclosed, but Arena will reportedly receive $3 million.
"Bruce was the only candidate for the job," said U.S. Soccer President Dr. Bob Contiguglia. "In our mind, there was never a question that Bruce Arena was going to be the man to guide our program in preparation for the 2006 World Cup.
"He was the right man for the job when we hired him in 1998 and he is the right man for the job today."
Negotiations dragged on for several months, although both parties said the issues had been worked out early. Arena said Tuesday that he had initially been unsure about returning to American soccer's highest position.
"Once the World Cup ended, I was not certain whether I was going to continue as coach," Arena said. "I wanted to get back into full-time managing and I kept an open mind to coming back to MLS. But at the end of the day, for personal reasons, I made the decision with my family to stay with U.S. Soccer."
Arena has been the most successful coach of the national team, leading them to an unprecedented quarterfinal appearance in the World Cup this year. The Americans then lost a competitive match to Germany, 1-0. He led the Americans to upset wins over Portugal and Mexico and a tie against co-host South Korea.
Arena has a World Cup record of 34-18-14, including a 12-6-2 mark in 2002.
"Obviously, his success on the field has been well-documented, but perhaps more important than those triumphs is the blueprint for the future development of the American professional game which he has imbedded into our national team program," Contiguglia said.
"It is my belief that those advancements will be his true legacy with U.S. Soccer.
Arena's first major tournaments during his new contract will be next summer, when the Americans play in the FIFA Confederations Cup and the CONCACAF Gold Cup.
"We have a couple of issues there," Arena said. "One, we are building a pool and we'll be looking at players probably until the summer of 2004."
Arena said that he was hoping to build around 20-year old phenom Landon Donovan, who will return to MLS this season instead of heading back to Bayer Leverkusen.
"Having Landon available is very important," Arena said. "He already has about 25 caps and should hit 100 real fast. It's time to look real hard at building a team around him. We want to be able to count on him in qualifying, both home and on the road."
One area of concern Arena did point to was the erosion of the European-based American player pool.
"The number of European players is diminishing rapidly," Arena said. "We had 12 out of Europe in the last Cup, I think, and out of that group, two were goalkeepers, so you're down to 10 field players."
Arena came to the national team from the University of Virginia, where he spent 18 seasons and won five NCAA titles. His record of 295-58-32 and .808 winning percentage is among the best in college sports.
In three seasons in the MLS, his club D.C. United won the MLS Cup twice and the Open cup once.