This paper elaborates the changing nature of American hegemony in international relations, and assesses the Bush Administration's determination to change the basis of US hegemony in the context of its proclaimed 'war on terror'. I argue that the Administration's grand strategy is self-defeating, threatening the status of the United States as a benign hegemon without enhancing its security. However, on the assumption that the neo-conservative influence over American foreign policy will wane in the coming months and years, it is not inconceivable to entertain the thought that the United States could still take advantage of its unprecedented power to promote a more sustainable liberal world order. The paper begins with an examination of American hegemony in international relations. I then discuss the manner in which the terms of that hegemony are being changed by the current Administration under the guise of the war on terror. The third section is a critical analysis of US grand strategy, and the paper concludes with an assessment of the conditions under which the US can sustain its dwindling hegemony in the years to come.