In what felt like a campaign speech, he repeated earlier calls for reducing the budget deficit through a mix of revenue increases, tax reform and spending cuts.
He also said he would support "modest reforms" in government programs including Medicare, as long as the wealthiest Americans contribute as well.
Obama pledged to reduce troop levels in Afghanistan by half over the next year, an acceleration of the effort to wind down America's longest war.
The president's rollout of his second-term agenda included many proposals aimed at helping low-income Americans advance educationally and economically.
Obama urged Congress to work with states to provide "high quality'' preschool to all four-year-olds, and to raise minimum wage from $7.25 to $9/hour.
The president repeatedly emphasized economic growth and job creation, and insisted that his proposals would not increase the nation's federal deficit.
He called it "our generation's task" to ignite the growth of a "rising, thriving middle class," and urged compromise on the challenges facing the nation.
"It is our unfinished task to restore the basic bargain that built this country ... the idea that if you work hard and meet your responsibilities, you can get ahead," he said.
"No matter where you come from, what you look like, or who you love."
He also made an emotional plea for Congress to hold votes on controversial proposals for tougher gun laws after December's Newtown, Conn., shootings.
At the same time, Obama called for legislators to work together for the good of the nation, saying Americans "expect us to put the nation's interests before party."
"They do expect us to forge reasonable compromise where we can ... let's do it without the brinksmanship that stresses consumers and scares off investors."
"The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next. We can't do it," he emphasized.
"Let's agree, right here, right now, to keep the people's government open, pay our bills on time, and always uphold the full faith and credit of the United States of America."
It was his fourth State of the Union address and seventh speech to a joint sitting of Congress, and set the tone for what will surely be political battles to come.
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