In his first address to a divided Congress, President Obama implored both parties to work together to confront the nation's challenges and outlined a broad strategy for keeping America competitive and stimulating economic growth.
The president spoke in front of an emboldened Republican Party and new House Republican majority that is deeply skeptical of his proposals for ways to boost the economy, create jobs and cut spending.
With that new reality on Capitol Hill, Obama emphasized bipartisanship and ways he and his fellow Democrats could work with Republicans, including a ban on earmarks and a spending freeze on parts of the budget that he said would save approximately $400 billion over five years.
"New laws will only pass with support from Democrats and Republicans," the president said. "We will move forward together, or not at all -- for the challenges we face are bigger than party, and bigger than politics."
The president began on a sober note, referring to the absence of Rep. Gabrielle Giffords, who is in a Houston hospital, recovering from gunshot wounds suffered in the shooting rampage in Tucson, Ariz., earlier this month. Arizona's congressional delegation honored their colleague by leaving a seat vacant for her
Obama said that while there have been contentious debates between the two parties over the last two years, it is "what a robust democracy demands."
It is because of that, he said, that the tragic shootings in Tucson "gave us pause."
"Amid all the noise and passions and rancor of our public debate, Tucson reminded us that no matter who we are or where we come from, each of us is a part of something greater -- something more consequential than party or political preference," he said. "We are part of the American family.
"We believe that in a country where every race and faith and point of view can be found, we are still bound together as one people; that we share common hopes and a common creed; that the dreams of a little girl in Tucson are not so different than those of our own children, and that they all deserve the chance to be fulfilled," he said in a reference to Christina Taylor Green, who was killed in Tucson two weeks ago.
Green's parents and younger brother were in the House Chamber, seated next to first lady Michelle Obama.
There was much made before the speech about the seating arrangements -- Democrats pairing off with Republicans in a gesture of bipartisanship and cooperation in the wake of the Tucson shooting.
Obama said the true test of bipartisanship is not where lawmakers sit, "but whether we can work together tomorrow."
Obama said that in last November's midterms, which he called a "shellacking" for his party the morning after, "the American people determined that governing will now be a shared responsibility between parties."
Obama called on Democrats and Republicans to move on from campaigning, and instead focus on a bipartisan approach to creating new jobs and a robust economy.
"At stake right now is not who wins the next election -- after all, we just had an election. At stake is whether new jobs and industries take root in this country, or somewhere else. It's whether the hard work and industry of our people is rewarded," he said. "It's whether we sustain the leadership that has made America not just a place on a map, but a light to the world."
The president struck an optimistic tone on the economy.
"We are poised for progress. Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again," he said.
As expected, Obama's address was not a laundry list of new policy proposals. In fact it was largely a narrative about the way forward, fitting the theme of "Winning the Future."
"From the earliest days of our founding, America has been the story of ordinary people who dare to dream," he said. "That's how we win the future."
The president outlined five key areas where he said the United States needs to move forward and Washington needs to make significant and immediate strides: innovation, education, infrastructure, tackling the national debt and government reform.
Obama said innovation is the first step toward keeping America's place as the world leader in creating the jobs and industries of the future.
"We are the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook," he said. "In America, innovation doesn't just change our lives. It's how we make a living."
Obama called for "our generation's Sputnik moment" when it comes to education and innovation.
"Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik, we had no idea how we'd beat them to the moon. The science wasn't there yet. NASA didn't even exist," Obama said. "But after investing in better research and education, we didn't just surpass the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs."
Obama called for a ban on earmarks and proposed a five-year freeze on non-security related discretionary spending, saving approximately $400 billion over five years.
The president has long been critical of members of Congress inserting their pet projects into legislation, but Congress has defied him on this and billions of dollars have continued to flow to their districts.
"Because the American people deserve to know that special interests aren't larding up legislation with pet projects, both parties in Congress should know this: if a bill comes to my desk with earmarks inside, I will veto it," he pledged.
Senate Majority Leader Harry Reid indicated today that he will not change his stance on pork barrel spending now that the president is going to propose an earmark ban.
"I think this is an issue that any president would like to have, that takes power away from the legislative branch of government and I don't think that's helpful. I think it's a lot of pretty talk and it's only giving the president more power. He's got enough power already," Reid told reporters on Capitol Hill.
Tonight Obama said the spending freeze will require "painful cuts" and noted that some sitting in front of him have proposed deeper cuts.
"I'm willing to eliminate whatever we can honestly afford to do without," he said. "But let's make sure that we're not doing it on the backs of our most vulnerable citizens."
Senate Republicans, meanwhile, said they're none too impressed with the president's plan to propose a budget freeze.
"I would remind you that in the speech last year there was a recommendation for a three-year freeze," the Senate's top Republican, Mitch McConnell of Kentucky, said. "And the problem with that is it freezes in place an extraordinary increase in spending that's occurred over the last two years. So it strikes most of us that the effort by the House of Representatives to get us back to 2008 spending levels would be the direction to go if we really wanted to have an impact on our annual deficit problem."
Obama seemed willing to renegotiate portions of his signature legislative achievement -- the health care reform bill that he signed into law last March.
"Now, I've heard rumors that a few of you have some concerns about the new health care law. So let me be the first to say that anything can be improved," he said. "If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you."
The House of Representatives, led by a new Republican majority, voted last week to repeal the health care law, but the movement will almost undoubtedly die in the Democratically-controlled Senate.
House Republicans and some conservative Democrats have vowed to re-examine portions of the law to try and repeal specific items, while letting some of its provisions stand.
"We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses," the president said. "Instead of re-fighting the battles of the last two years, let's fix what needs fixing and move forward."
Most of the speech was focused on domestic issues -- the president did not even mention foreign policy until nearly an hour into the speech.
Obama gave his administration credit for the nation's progress on the world stage over the last two years, including the new START treaty and progress in Iraq and Afghanistan.
"America's moral example must always shine for all who yearn for freedom, justice, and dignity," he said. "And because we have begun this work, tonight we can say that American leadership has been renewed and America's standing has been restored."
Obama announced he will travel to South America in March, his first trip there as president. He will make stops in Brazil, Chile and El Salvador.
The White House had said that what the president outlined tonight is a "robust agenda" -- and a message that both Democrats and Republicans can support.
"He's going to be proposing strategic, targeted spending that's smart," White House senior advisor Valerie Jarrett said on "Good Morning America." "We want to invest in education. We want to invest in infrastructure. But we also have to tighten our belts and be more efficient."
But Republicans said that "investment" is just a code word for more government spending, which they say they were elected to rein in.
"I'm hopeful that the word investment isn't just more stimulus spending and bigger government here in Washington," House Speaker John Boehner said.
"If history is our guide, most Republicans will agree with 80 percent of what he says, but disagree with 80 percent of what he does," Rep. Jeb Hensarling, R-Texas, said this morning.
Rep. Paul Ryan, R-Wis., chair of the House Budget Committee, will give the Republican response following the president's address. Ryan's message will be clear -- increasing government spending will hurt job creation and pile up debt for future generations.
"Americans are skeptical of both political parties, and that skepticism is justified -- especially when it comes to spending," Ryan will say, according to an excerpt of his prepared remarks. "So hold all of us accountable. In this very room, the House will produce, debate, and advance a budget. Last year -- in an unprecedented failure -- Congress chose not to pass, or even propose a budget. The spending spree continued unchecked."
But Ryan is not the only Republican giving a response tonight. Rep. Michelle Bachmann, R-Minn., will give the Tea Party perspective in an online address after Ryan's.
Continuing a tradition that began under Ronald Reagan, the White House invited special guests to sit with first lady Michelle Obama in her box in the House Gallery tonight.
Some notable attendees included Daniel Hernandez, the intern credited with saving Rep. Gabrielle Giffords' life when the Arizona Democrat was shot in Tucson earlier this month; the family of Christina Taylor Green, who was killed in that shooting; Giffords' surgeon, Dr. Peter Rhee; and Army Staff Sgt. Salvatore Giunta, who was recently awarded a Medal of Honor for his service in Afghanistan in 2007.
There was also an effort led by Reps. Michael McCaul, R-Texas, and Debbie Wasserman-Schultz, D-Fla., to distribute black-and-white ribbons for members of Congress to wear in honor of the victims of the Tucson tragedy.
ABC News' Matthew Jaffe contributed to this report.