In a speech to both houses of Congress, carried live at prime time on all of the US television networks, Mr Obama outlined the battleground for this year’s presidential election.
The address is the President's annual opportunity to outline his vision of the nation's future to the American people.
But there was a definite campaign feel about his hour-long address.
Mr Obama faces a tough battle to secure a second term in the White House and he took a direct swipe at one of his rivals for the job.
The President called on the country's richest to pay a bigger share of their income in tax - a day after Mitt Romney confirmed he paid around 15% a year.
"We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by," he said.
"Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.
"What's at stake are not Democratic values or Republican values, but American values. We have to reclaim them."
He went on to lay out what he said was a "blueprint for an economy that's built to last - an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values".
He also criticised those on Capitol Hill he believes have blocked progress.
He said: "As long as I'm President, I will work with anyone in this chamber to build on this momentum.
Mr Obama greeted congresswoman Gabrielle Giffords"But I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place."
It prompted a stinging official Republican response from Indiana Governor Mitch Daniels
He said: "No feature of the Obama presidency has been sadder than its constant efforts to divide us, to curry favour with some Americans by castigating others.
"As in previous moments of national danger, we Americans are all in the same boat.
"If we drift, quarrelling and paralysed, over a Niagara of debt, we will all suffer, regardless of income, race, gender, or other category."
Mr Romney released a video called The Real State of the Union which featured him speaking in front of a banner reading: "Obama is not working."
He hit back at what Mr Obama had to say. "The real problem is that he seems to think that America is on the right track. That idea is very foreign to people here."
There was an emotional moment when Mr Obama greeted congresswoman Gabrielle Giffords, still recovering from injuries sustained in a shooting rampage last year and about to step down from Congress.
The President delivered tough words on Syria and Iran in covering a broad range of topics and paid tribute to America's armed forces.
He said: "America is back. Anyone who tells you otherwise, anyone who tells you that America is in decline or that our influence has waned, doesn’t know what they are talking about."
Mr Obama will embark on a three-day, five-state tour later to sell his message to the American people.
"Let's never forget - millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same," he said.
"It's time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody."
