WASHINGTON, Jan. 27, 2010 — -- In his first State of the Union address, President Obama said job creation will be his administration's top priority this year and he vowed to continue pushing for health-care reform legislation despite recent political setbacks.
"Jobs must be our number one focus in 2010," the president said. His call for a new jobs bill drew bipartisan support from the Members of Congress seated before him in the House chamber.
Obama dedicated about two-thirds of his address to the economy and domestic policy issues as he tried to reassure an increasingly skeptical U.S. public that his agenda is the right solution to fix the nation's economic woes.
The president acknowledged mistakes made in his first year, but he was resolute that he could keep the promises he made to the American people when he ran for office.
"I campaigned on the promise of change -- 'change we can believe in,' the slogan went. And right now, I know there are many Americans who aren't sure if they still believe we can change -- or at least, that I can deliver it," Obama said. "But remember this -- I never suggested that change would be easy, or that I can do it alone."
It is because of the American people's "resilience in the face of adversity" that the president said he has "never been more hopeful" about the nation's future than he is tonight.
"Despite our hardships, our union is strong," he said.
Obama's message seemed aimed at rallying the American people and reassuring them that his administration and the politicians in Washington understand their concerns and are working for them.
"We do not give up. We do not quit. We don't allow fear or division to break our spirit," the president said. "In this new decade, it's time the American people get a government that matches their decency; that embodies their strength."
Despite recent election setbacks for Democrats, Obama told Congress and the American people that he "will not walk away" from his controversial drive for health insurance reform, and urged Congress to stay with him.
"Here's what I ask of Congress, though: Do not walk away from reform. Not now. Not when we are so close," he said. "Let us find a way to come together and finish the job for the American people.
"By the time I'm finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year," he said. "I will not walk away from these Americans. And neither should the people in this chamber."
Obama acknowledged that there is uncertainty and confusion out there about what the legislation will do and he took some of the blame for not explaining it more clearly to the American people.
He urged Americans to take another look at his administration's proposal.
"There's a reason why many doctors, nurses, and health care experts who know our system best consider this approach a vast improvement over the status quo," he said. "But if anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors and stop insurance company abuses, let me know."
Noting the partisan rancor that has marked Washington this year, Obama said that there is one thing that both Democrats and Republicans have agreed on -- "we all hated the bank bailout. I hated it. You hated it. It was about as popular as a root canal."
He defended the fees he recently proposed on the big Wall Street banks to recoup the money they owe the government.
"Look, I am not interested in punishing banks, I'm interested in protecting our economy," he said.
Obama proposed taking $30 billion of the money repaid by Wall Street banks and directing it to community banks to allow them to lend to small businesses.
Obama Confronting 'Anger and Cynicism'
A popular president, Obama has spent a year's worth of political capital on what has turned out to be an unpopular agenda. Tonight's address offered a chance for him to outline what he hopes to do in his second year to get the economy back on track and reconnect with Americans.
With Republican victories in recent elections in Virginia, New Jersey and Massachusetts -- Obama won in the 2008 presidential election -- the president's agenda has, to a degree, been rebuked by the voters.
"I have not detected a level of anger and cynicism about the federal government in my lifetime as high as it is today," said Sen. Evan Bayh, D-Ind.
Obama sought to appeal to voters by discussing programs that will help them directly, including nearly doubling the child tax credit, helping with student loans and developing ways to help the job market improve.
The president stressed that his administration cut taxes last year for working families, small businesses, first-time home buyers and Americans paying for college.
Obama called for a tax credit for small-business new hires, the elimination of capital-gains taxes for small-business investments and an extension of tax cuts and credits for the purchase of new equipment or facilities. Treasury Secretary Tim Geithner and Small Business Administrator Karen Mills will be the point people for the new proposals.
The administration is facing mounting pressure to do something about the rising national debt, which has become a political liability. The latest ABC News/Washington Post poll found that 56 percent of Americans disapprove of Obama's handling of the federal budget deficit.
Among independents, who have flocked to Republicans in recent elections, the president fares even worse, with 2-1 disapproval.
In a move that is raising alarms among many liberals, Obama proposed a three-year freeze on domestic spending not related to national security or entitlement programs like Medicare.
"Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don't. And if I have to enforce this discipline by veto, I will," the president said.
The freeze saves $250 billion over 10 years -- less than 1 percent of what the government spends.
"It's only one of the things that we're going to be doing, but it's nonetheless important. It's important to draw a line somewhere," said Peter Orszag, the director of the Office of Management and Budget.
The decision has drawn heat from liberals who questioned the president's priorities.
"If people are hungry, you want to make sure that we're spending appropriately so that nobody goes hungry," said Sen. Bernie Sanders, D-Vt., who sits on the Senate Budget Committee. "If we're spending money on weapons systems that are no longer relevant in the fight against terrorism, you want to eliminate that."
Obama acknowledged concerns from his own party that the government cannot freeze spending in tough economic times.
"I agree, which is why this freeze will not take effect until next year, when the economy is stronger," he said. "But understand – if we do not take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery – all of which could have an even worse effect on our job growth and family incomes."
Republicans, Voters Concerned About Deficit
Meanwhile, conservatives say that the president is not cutting nearly enough federal spending.
"We've been on quite a binge over the last 12 months, and it's going to take a lot more than just this kind of modest freeze to get us back on the right track," said Sen. Minority Leader Mitch McConnell, R-Ky.
Obama tonight pushed for a bipartisan commission to make recommendations on how to reduce the national debt, despite the Senate's voting Tuesday against a measure that would have created an entity, modeled after the Base Closure Commission, to issue such recommendations.
The fiscal commission vote failed with 53 votes, seven shy of the required 60. Even seven of the bill's original cosponsors voted against it. Obama said tonight he will issue an executive order to "allow us to go forward" with such a measure because he refused "to pass this problem on to another generation of Americans."
The president said tonight that the commission "can't be one of those Washington gimmicks that lets us pretend we solved a problem."
"The commission will have to provide a specific set of solutions by a certain deadline," he said.
But one of the lead sponsors of the failed bill, Sen. Kent Conrad, D-N.D., said a commission created by executive order and not by Congress itself was of questionable worth.
"I don't see how that's effective, because there's no assurance at all of a vote on the recommendations of the commission," Conrad told reporters Tuesday.
The Senate bill would have required Congress to vote on its recommendations.
Obama renewed his pledge to repeal the "Don't Ask, Don't Tell" ban on gays and lesbians serving openly in the military.
"This year, I will work with Congress and our military to finally repeal the law that denies gay Americans the right to serve the country they love because of who they are," Obama said.
Though he planned to work on the repeal this year, Obama did not seem to guarantee it would be repealed in 2010.
The president ran through a list of domestic policy priorities he wants to push this year, including an education overhaul.
"The idea here is simple: instead of rewarding failure, we only reward success," he said. "Instead of funding the status quo, we only invest in reform -- reform that raises student achievement, inspires students to excel in math and science, and turns around failing schools that steal the future of too many young Americans, from rural communities to inner cities."
Some education programs in the budget will be consolidated, but overall there will be a 6.2 percent increase in funding for the Department of Education, including an additional $1.35 billion for the Race to the Top program, to be expanded with a separate competition for school districts.
Obama Says Nation Facing 'Deficit of Trust
Obama said the nation is not just staring down a deficit of dollars but also a "deficit of trust -- deep and corrosive doubts about how Washington works that have been growing for years."
In order to fix that, Obama said action has to be taken on both ends of Pennsylvania Avenue -- at the White House and on Capitol Hill.
Obama called for "strict limits" on the amount of money that lobbyists can give to political candidates. He will issue an order to Congress to come up with legislation that would reverse last week's Supreme Court decision that said corporations should not be restricted from spending unlimited amounts on political commercials.
"I don't think American elections should be bankrolled by America's most powerful interests, and worse, by foreign entities," he said. "They should be decided by the American people, and that's why I'm urging Democrats and Republicans to pass a bill that helps to right this wrong."
Obama reiterated his commitment to energy reform and earned bipartisan applause for advocating for the building of new nuclear power plants as a way to create clean energy jobs.
With such a heavy emphasis on domestic policy and the economy, the president seemed to gloss over the foreign policy items on his agenda this year. He noted the troop increase in Afghanistan and withdrawal of troops from Iraq and the continued work with Russia on nuclear disarmament.
Obama stressed his administration's commitment to working with allies.
"That is the leadership that we are providing -- engagement that advances the common security and prosperity of all people," he said.
There was no mention of Middle East peace talks or his administration's plans to close the detention center at Guantanamo Bay.
First lady Michelle Obama continued the tradition of inviting notable guests to sit with her in the House Gallery for the State of the Union.
Her guests included two service members, military spouses and Americans whom the White House wanted to highlight for their work as an entrepreneurs or community activists.
Sgts. Kimberly Munley and Mark Todd, civilian members of the Ft. Hood police force who stopped the deadly rampage on the Texas military base on Nov. 5, attended tonight's speech and sitting with the first lady.
Also in attendance were Ambassador Raymond Joseph, Haiti's ambassador to the United States; Rebecca Knerr, wife of Captain II Joseph Knerr, leader of Fairfax County's Va.'s Task Force 1 serving in Haiti; and two college students who participated in the White House's D.C. Scholars program as high school students.
One of those students, Clayton Armstrong, said he almost missed the White House call.
"English class was just ending," the college freshman told ABC News. The caller "asked me if I would be able to come back to D.C." from the University of Arizona. "The first lady is inviting you to sit with her in the box" for the State of the Union address.
Armstrong was stunned silent.
"He wanted to make sure I was still on the phone," Armstrong said. "My heart was pounding the rest of the day."
Armstrong and the second student, Janelle Holloway, a freshman at Harvard, are both products of troubled Washington, D.C., public high schools. Both beat the odds and made it to college, and both held White House internships last summer.
Holloway's work on the correlation between abused children and teen violence caught the eye of the West Wing's Domestic Policy Council.
ABC News' Devin Dwyer, Ann Compton and Sunlen Miller contributed to this report.