An inverse analysis approach using the finite element method has been proposed to determine the energy balance or the energies flowing into a tool, workpiece and chip per unit volume of material removed in two dimensional machining. Once the energy flow rates are obtained, a three-dimensional temperature distribution for complicated tools such as an end mill can be analyzed easily and efficiently. The method proposed has been employed to clarify the effect of thermal properties on the energy balance. The energy flowing into the tool is most enhanced when a low-thermal-conductivity workpiece is machined by a high-thermal-conductivity tool with a coolant: wet turning of a titanium alloy by a diamond tool is a typical case. It is found that temperature change of a carbide square end mill in titanium machining ranges from 400 to 800°C at a cutting speed of 314 m/min because of a low energy flow rate into the tool of around 0.04 and the cooling action by a coolant. The suitability of the present method has been confirmed numerically and experimentally.