International negotiations on preventing Iran from developing a nuclear weapon will be difficult and "they may not succeed", he acknowledged in his State of the Union address to a joint session of the Congress Tuesday night.
"We are clear-eyed about Iran's support for terrorist organizations like Hezbollah, which threaten our allies," Obama said noting that "the mistrust between our nations cannot be wished away".
"Sanctions that we put in place helped make this opportunity possible," he said. "But let me be clear: if this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it."
"For the sake of our national security, we must give diplomacy a chance to succeed," he said.
On Afghanistan, Obama said "a small force of Americans could remain in Afghanistan with NATO allies" after 2014 if the Afghan government signs a security agreement.
The post withdrawal mission would involve training and assisting Afghan forces as well as continuing counterterrorism operations against "remnants of Al Qaeda", he said.
Noting that he had "imposed prudent limits on the use of drones" and that he "will work with Congress to reform surveillance programmes disclosed by intelligence leaker Edward Snowden", Obama said, "America must move off a permanent war footing".
Obama also called for Congress to lift restrictions on transferring terrorism suspects from the Guantanamo Bay prison and close it in 2014 "because we counter terrorism not just through intelligence and military action, but by remaining true to our Constitutional ideals, and setting an example for the rest of the world."
On outsourcing, he called on the Congress to work with him to rewrite the tax code to close "loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs here at home".
"We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs," he said seeking support for plans to launch six more hubs for high-tech manufacturing.
"When 98 percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create more jobs," he said.
"We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped 'Made in the USA'," Obama said.
"China and Europe aren't standing on the sidelines. Neither should we," he said.