"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," Obama said in a major foreign policy speech on the recent developments in the Middle-East and North African countries.
"We believe the borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognised borders are established for both states.
"The Palestinian people must have the right to govern themselves, and reach their full potential, in a sovereign and contiguous state," he said.
For decades, the conflict between Israelis and Arabs has cast a shadow over the region. This conflict has come with a larger cost to the Middle East, as it impedes partnerships that could bring greater security and prosperity and empowerment to ordinary people, he noted.
He said that at a time when the people of the Middle East and North Africa are casting off the burdens of the past, the drive for a lasting peace that ends the conflict and resolves all claims is more urgent than ever. That`s certainly true for the two parties involved.
"For the Palestinians, efforts to delegitimise Israel will end in failure. Symbolic actions to isolate Israel at the United Nations in September won`t create an independent state.
"Palestinian leaders will not achieve peace or prosperity if Hamas insists on a path of terror and rejection. And Palestinians will never realise their independence by denying the right of Israel to exist," Obama said.
The US President also said that the technology will make it harder for Israel to defend itself. "A region undergoing profound change will lead to populism in which millions of people -- not just one or two leaders -- must believe peace is possible. The international community is tired of an endless process that never produces an outcome.
"The dream of a Jewish and democratic state cannot be fulfilled with permanent occupation," he said.
However, ultimately it is up to Israelis and Palestinians to take action. No peace can be imposed upon them -- not by the United States, not by anybody else. But endless delay won`t make the problem go away, he said.
"What America and the international community can do is to state frankly what everyone knows: a lasting peace will involve two states for two peoples -- Israel as a Jewish state and the homeland for the Jewish people, and the state of Palestine as the homeland for the Palestinian people; each state enjoying self-determination, mutual recognition and peace.
"So while the core issues of the conflict must be negotiated, the basis of those negotiations is clear: a viable Palestine, a secure Israel," he added.