Customers who have already bought a bumper -- a plastic cover that prevents human contact from disrupting the antenna signal -- will qualify for a refund.
Job's announcement came at a much-anticipated press conference at Apple's headquarters in Cupertino, California, called to address a recent flurry of bad publicity over iPhone 4 reception issues. More than 3 million iPhones have been sold to date, he said.
"We're not perfect, and phones aren't perfect either," Jobs said, pacing on stage with an iPhone on hand, wearing his trademark black turtleneck sweater. "But we want to make all of our users happy... and if you don't know that about Apple, you don't know Apple."
Jobs told users they could return their iPhones and get their money back under the company's regular policy.
"If you're still not happy, we'll give full refunds," he said.
Jobs was doing damage control just three weeks after Apple launched the device to great fanfare. More than 1.7 million iPhone 4s were sold around the world within three days, making it the company's most successful launch ever. At the time, Jobs touted it as the "biggest leap" yet from the original iPhone.
But tech reviewers and users soon began complaining about dropped calls and spotty reception when the user's palm covers the bottom left corner of the phone. The flaw, dubbed the "death grip" by bloggers, appears to cut calls off when one's hand interferes with the antenna, which is embedded in the phone's metal shell.
Consumer Reports -- which announced Monday that it could not recommend the iPhone 4, issued a brief statement after Jobs' news conference:
"Consumer Reports believes Apple's offer of free cases is a good first step. However, Apple has indicated that this is not a long-term solution, it has guaranteed the offer only through September 30th, and has not extended it unequivocally to customers who bought cases from third-party vendors," it said. "
We look forward to a long-term fix from Apple. As things currently stand, the iPhone 4 is still not one of our recommended models."
Jobs did not apologize for the defect. Instead, he showed video of other smartphones -- from Blackberry, Droid and Samsung -- that lose signal strength when held in the "death grip."
"We love making our users happy," said Jobs, boasting that the iPhone 4 continues to garner positive reviews from customers and tech experts. "People seem to like it. More important, users seem to want it."
Jobs argued that "antennagate," as Apple has humourously dubbed the issue, is overblown, since just 0.5 percent of iPhone 4 users have called AppleCare to complain, and fewer than 2 percent have returned their phones.
"All smartphones seem to do that," Jobs said of the reception problem that occurs when one's hand covers the antenna. "We haven't figured out a way around the laws of physics."
Nevertheless, Jobs admitted that "we screwed up the algorithm" on the signal strength indicator. "We've been working our butts off" to understand the issue, he said.
Later, during a brief question-and-answer session, Jobs denied reports that he knew about the flaw before the phone was released.