President Obama prodded Israel on Thursday to pursue a peace deal with the Palestinians based on boundaries defined more than half a century ago, the first time an American president has articulated such a stance, and urged Arab governments to carry out the democratic reforms their citizens have demanded.

Speaking in the State Department’s ornate Benjamin Franklin Room, Obama attempted to advance his project of making U.S. foreign policy more consistent with what he sees as American values, including democratic governance and respect for individual rights. He acknowledged that “our friends in the region have not all reacted to the demands for change consistent” with those principles.

Obama referred to two U.S. partners, Yemen and Bahrain, although his speech did not mention Saudi Arabia, an oil-rich American ally that has helped neighboring Bahrain crack down on anti-government demonstrators.

The president pressed Israel, in unusually frank terms, to reach a final peace agreement with the Palestinians, citing the boundaries in place on the eve of the June 1967 Arab-Israeli War as the starting point for negotiation about borders.

The formulation goes beyond principles outlined by President George W. Bush, who stated during his first term that “it is unrealistic to expect” Israel to pull back to the 1967 boundaries, which were based on cease-fire lines established in 1949. Obama said the negotiations about final borders, which he indicated may include land swaps to accommodate Israel’s large settlement blocs, should result in “a viable Palestine, a secure Israel.”

The president said a “full and phased withdrawal of Israeli military forces” from the West Bank should be carried out in coordination with Palestinian security forces. He described a future Palestinian state as “nonmilitarized,” a key Israeli demand.

Israeli Prime Minister Binyamin Netanyahu, who is set to visit Obama on Friday at the White House, issued a critical statement following the speech, declaring that “the viability of a Palestinian state cannot come at the expense of the viability of the one and only Jewish state.”

He said the 1967 boundaries are “indefensible and . . . would leave major Israeli population centers in Judea and Samaria beyond those lines,” using Biblical terms for the West Bank.

Obama acknowledged that the conflict’s most contentious questions — the division of Jerusalem, which both Israelis and Palestinians claim as their capital, and the right of Palestinian refugees or their descendants to return to homes in Israel — would still need to be resolved. But he said moving forward now on the border and security aspects would provide a foundation for settling the two “wrenching and emotional issues” in a “just and fair” manner.

“Precisely because of our friendship, it is important that we tell the truth: The status quo is unsustainable, and Israel must act boldly to advance a lasting peace,” Obama said. “The dream of a Jewish and democratic state cannot be fulfilled with permanent occupation.”

Obama essentially embraced the middle ground between two camps within the administration that for months have debated how far he should go in spelling out his plan for Israeli-Palestinian peace.

“We felt it was important to create a basis for future negotiations that might help them be more successful,” said a senior administration official who had a role in writing the speech.

Obama settled on mentioning the 1967 boundaries, but not the status of Jerusalem or Palestinian refugees, because it was the final status issue “on which there was the broadest consensus,” the official said.

The 45-minute speech was Obama’s first attempt to define the U.S. interest in the political changes taking place across the Middle East and North Africa, driven by a series of anti-government upheavals unfolding differently in countries from Libya through the Persian Gulf states.

He said, “It will be the policy of the United States to promote reform across the region and to support transitions to democracy.”

Obama used plain prose throughout his address, drawing at times on specific stories from the revolutions in Tunisia and Egypt and the ongoing protests in Syria to dramatize the policy he outlined. The State Department streamed simultaneous translations of the address in Arabic, Farsi and Hebrew, as it did for his speech to the Islamic world in Cairo in June 2009.

In that address, Obama asked for a “new beginning” with Muslims, at home and abroad, endorsing democracy as the most stable form of government while pledging not to impose one system on another nation.

Directed primarily at the Arab Middle East, the reference was to Bush’s “freedom agenda,” which in the case of Iraq sought to bring democracy to Arab society by means of a U.S.-led invasion. Administration officials said the scheduled U.S. departure from Iraq at the end of the year opens the door for a new relationship with the region — a point Obama emphasized in his address.

Many of the same advisers involved in the first speech had a say in this address, including Vice President Biden and Obama’s senior national security staff, as well as the pragmatic voices of national security adviser Thomas E. Donilon and his chief deputy, Denis McDonough, and Ben Rhodes, the deputy national security adviser for strategic communications.

But since the Cairo speech, the anti-government uprisings, known collectively as the Arab Spring, have recast the region's politics and energized the mostly young, Muslim populations now pushing against the political and economic barriers they have confronted for years.

The challenge of Thursday’s speech, directed at both an audience of U.S. diplomats, European allies and the 400 million people of North Africa and the Middle East, was to balance the long-standing U.S. interest of stability in the oil-rich region with Obama’s pledge to support reform movements in a part of the world where some of the most powerful political forces are rooted in Islamist politics at odds with U.S. policy.

“After decades of accepting the world as it is in the region, we have a chance to pursue the world as it should be,” Obama said. “As we do, we must proceed with a sense of humility.”

Obama outlined a number of economic initiatives that he said would further that goal, drawn from a White House study of democratic transitions from Latin America to Southeast Asia.

Those include $2 billion in debt relief and loan guarantees for Egypt, and pledges to focus multilateral lending institutions on the task of helping nations in revolt or beginning transitions to build viable economies.

But the proposal met some immediate resistance in Congress. House Foreign Affairs Chairman Ileana Ros-Lehtinen (R-Fla.) said that “considering our own national debt, we cannot afford to forgive up to $1 billion of Egypt’s debt.”

Obama hesitated to fully back the anti-government demonstrations as they unfolded in Egypt, Libya and Tunisia, following some European leaders in calling for regime change. He also has cautiously championed reform — but not changes in government — in Syria, Saudi Arabia and Bahrain, where the United States has more potent interests in maintaining the status quo.

White House officials said there was little debate about the decision to exclude Saudi Arabia from the speech, with one saying the issue was “eighth or ninth” on the list of importance.

Obama acknowledged the U.S. challenge in standing by allies, such as Yemen and Bahrain, whose leaders have opposed the kinds of protests that Obama has encouraged elsewhere.

In his strongest terms to date, Obama condemned Syrian President Bashar al-Assad, who has responded to a widening protest movement with a crackdown that human rights groups say has killed more than 920 people. Obama announced financial sanctions against Assad on Wednesday for human rights abuses.

“President Assad now has a choice: He can lead that transition, or get out of the way,” Obama said. “The Syrian government must stop shooting demonstrators and allow peaceful protests, release political prisoners and stop unjust arrests, allow human rights monitors to have access to cities like Daraa, and start a serious dialogue to advance a democratic transition.”