Striking a more dour tone than those of his speeches on the campaign trail, Obama said the country faced a crisis of confidence as much as a crisis of the economy.
"Homes have been lost; jobs shed; businesses shuttered," he said. "Less measurable but no less profound is a sapping of confidence across our land -- a nagging fear that America's decline is inevitable, and that the next generation must lower its sights."
From enumerating America's problems he called on Americans to take action and not stand idly by, repeating a theme of Monday's day of national service.
"Our time of standing pat, of protecting narrow interests and putting off unpleasant decisions, that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America," he said.
"What is required of us now is a new era of responsibility, a recognition, on the part of every American, that we have duties to ourselves, our nation and the world," Obama said. Taking responsibility, he said, is "the price and the promise of citizenship." To boost the economy, Obama pledged to implement the national infrastructure projects he has been promoting and pitching to Congress in recent weeks.
"Everywhere we look, there is work to be done," he said.
Addressing U.S. foreign policy and subtly repudiating President Bush's decision to go to war in Iraq, Obama said "power alone cannot protect us, nor does it entitle us do as we please."
The closest he came to acknowledging his status as the nation's first African American president was when he cited the country's "noble idea? the God-given promise that all are equal, all are free and all deserve a chance to pursue their full measure of happiness."
He noted that "a man whose father less than 60 years ago might not have been served at a local restaurant can now stand before you to take a most sacred oath."
The historical moment was deeply personal and moving for many Americans but struck a particularly deep chord with African-Americans.
"We brought in a new president who is capable and qualifed and happens to be African-American," said former Secretary of State Colin Powell. "I'm not ashamed to say, in fact I'm proud to say. I was tearing up just like everybody else."
Many of America's best-known celebrities attended the event. Actor Denzel Washington and former NBA player Magic Johnson had seats near the rostrum.
The legendary singer Aretha Franklin sang "My Country 'Tis of Thee" and was followed by a quartet that included Yo-Yo Ma and Itzhak Perlman who performed a composition composed by John Williams.
Following the speech, the Obamas went to the President's Room in the Capitol and signed three executive orders to maintain the continuity of government, his first official act as president.
Before the ceremonies at the Capitol, the Bushes greeted the Obamas at the White House. Michelle Obama hugged Laura Bush, and handed her a box wrapped in a red ribbon. The men shook hands, and the four of them turned and posed briefly for photos before heading inside.
They later emerged to ride together to the Capitol for Obama's rendezvous with history.