The interwar period is a long period. 1920 is very different from 1939 (for Dutch and Belgian purposes still 'interwar'). Most of my 'expertise' lies with the Netherlands, so I'll limit my reply to that country.

I'm not sure it was an assumption, in the Netherlands there existed a very strong pacifist sentiment, which felt vilified after the First World War, in which all of Europe was thrown in a brutal war except for the Netherlands. This lead to a significant reduction in the size and budget of the armed forces. This is slightly ironic considering a main reason for the succesful Dutch neutrality policy in the Netherlands during the Great War was its strong military.

By the late thirties, and especially after the Second World War started (not for the Dutch until may 1940!), things had changed a lot. Germany was clearly the only threat, so military spending increased again. However, modernisation and training of the military were at a severe disadvantage which could not be repaired in time. Preparations for a war (or at least, war-related shortages) had already started though, which proved advantageous to the civil government under the occupation, who had a decent rationing system to fall back on.

There actually was a lot more cooperation and coordination with the Allies and Belgium than some might think. Emergency contingency plans for cooperation were set up, to include a battle plan in the event of a German invasion, which was indeed considered to be a real possibility. The Dutch air force operated air fields that were of paramount importance to the German military due to their location relatively close to Britain, and the possibility the Netherlands offered of circumventing the French defences was plainly visible.

While great care was taken to avoid upsetting and antagonising the Third Reich (including allowing German military observers to tour the country, which the Abwehr made great use of), aiding the British intelligence during what is now called the Venlo incident (a Sicherheitsdienst operation on Dutch soil that captured British intelligence officers) and several other intelligence clashes (including a crashed German plane carrying invasion place that its pilot could burn barely in time) made the tension very real. We shouldn't mistake trying to avoid setting of a war when ill-prepared with trying to pretend there isn't a very real threat of one.

The reasonability of the neutral stance during the entire interwar period is hard to judge; the Dutch stance toward neutrality is understandable for most of the period, it worked for them before and for a long there was no clear threat, and in any case the UK still protected Dutch neutrality. However, that long-time neutral attitude did ultimately make it very hard to prepare a proper defence when real threats began to surface. Not because of any naive attitudes (long gone by '39), but simply because the military started from a very poor position after a long period of neglect.

Source: Het falen van de Nederlandse gewapende neutraliteit, Tobias van Gent

The Kingdom of the Netherlands During the Second World War, Book 2, Loe de Jong.