He said the US wants Pakistan to realise that the biggest threat to it does not come from outside but is "homegrown". He said: "They see that as their existential threat. I think that''s a mistake. I think that peace between India and Pakistan would serve Pakistan very well".
He said Pakistan needs to do shed its orientation of looking at every issue through the India lens to be able to make full economic progress.
"It would free up resources and capacity for them to engage in trade and commerce, and make enormous strides that you're seeing India make. But that's their orientation".
Obama added: "It's been that orientation for a long time. And so they look at issues like Afghanistan. Or the border region in the FATA (Federally Administered Tribal Areas) through the lens of what does this mean for our contest with India".
Obama said the US is currently trying to bring about a reorientation in Pakistan's attitude towards India and make it recognise that the main threat is from terrorists operating from Pakistan soil.
He said: "Well, part of what we''re trying to do is to talk to them about how they can reorient their strategy so that they understand that the biggest threat to Pakistan and its stability is homegrown".
Obama added: "And that if we don't go after these networks that are willing to blow up police stations, blow up crowds of people assassinate Pakistani elected officials with impunity - if they don''t get a handle on that then they're gonna see a significant destabilisation of the country".