The president came to the State Department to mark a historic push for democracy taking place throughout the Middle East.
"The people of the region have achieved more change in six months than terrorists have accomplished in decades," said Obama.
The president promised to forgive a billion dollars in loans to Egypt and said the United States would work to create enterprise zones to encourage private investment.
"It will be the policy of the United States to promote reform across the region and to support transitions to democracy," he said.
From his home in Silicon Valley, Ossama Hassanein, the chair of TechWadi, the largest network of Arab-American high-tech executives, watched the speech.
"I believe the first part would have left people, particularly the youth, absolutely delighted," said Hassanein. "Everything that he said was so inspiring, so wonderful."
Hassanein says the president's speech writers even consulted with him, but when the president began talking about the Israeli-Palestinian conflict, the reaction was quite different.
"It will probably be viewed with a great deal of skepticism, and justifiably so," said Hassanein.
"The United States believes that negotiations should result in two states with permanent Palestinian borders with Israel, Jordan and Egypt, and permanent Israeli borders with Palestine," said Obama.
The president said the borders should be based on 1967 lines. The office of Israel's prime minister immediately tweeted, "...U.S. commitments made to Israel in 2004... relate to Israel not having to withdraw to the 1967 lines which are both indefensible and ... leave major Israeli population centers in Judea and Samaria beyond those lines."
At Link TV in San Francisco, producers watched reaction from Arab stations in the Middle East.
"For the most part, a lot of disappointment with the speech," said Lara Bitar with Mosaic News Link TV. "A lot of people are saying that it's the same old rhetoric that we've been hearing for a long time, nothing new really, and the same recycled ideas."
Friday, Israeli Prime Minister Benjamin Netanyahu gets a chance to tell the president directly what he thinks when he makes a stop at the White House.