Condoleezza Rice, the US secretary of state, also announced plans to restructure foreign aid, with the goal of better coordinating the more than $19 billion in foreign assistance the state department handles each year.
"We can do better and we must do better," Rice said at a state department ceremony to announce the choice of Tobias, a former pharmaceutical company executive, as new head of the US Agency for International Development (USAid).
Tobias will also become director of foreign assistance overall, based at the state department. It will be his job to direct policy, budgets and implementation of aid across departments.
The state department has for months been looking into how it can make its foreign assistance programme more in line with foreign policy goals including democratisation and post-conflict reconstruction.
Aid experts fear the restructuring could further politicise foreign assistance and ultimately reduce funding for poverty reduction and other development goals, a criticism the state department says is unfounded.
USAid was created in 1961 by President John F Kennedy and while the administrator reports directly to the secretary of state, it has had some degree of independence.
By giving Tobias a job in the State Department as well as the USAid position, aid groups said they were anxious about how aid would be handed out.
"We are very concerned and afraid that short-term political objectives may come to have too much influence in how foreign assistance resources are allocated," said one senior official from a leading aid group, who declined to be named because of the sensitive nature of his comments.
He said it was essential that Rice's political agenda not be allowed to hijack longer-term development programmes and that there had to be some "firewalls" established.
Speaking later to several thousand USAid employees about the changes, Rice rejected suggestions that the state department had a short-term view of development issues.
"If we have a short-term perspective, we will fail"
US secretary of state
"If we have a short-term perspective, we will fail," she said.
Andrew Natsios, the outgoing USAid chief and now a Georgetown University professor, said he had spoken to Rice for the past two years about the need for a more coherent approach to foreign assistance.
"I told her how dysfunctional the current system was ... and that there was no coherence to it," he told Reuters, adding that he supports the option Rice chose.
One possibility had been to appoint a foreign aid "czar." Another was to merge USAid with the State Department, a move Natsios opposed and one he said Rice never supported.
Natsios said he hoped the Bush administration would invest funds in getting more staff for USAid programmes instead of relying on contractors.
Outgoing Natsios said he hoped
for more staff for USAid
"All the initiatives and all the spending is endangered if we do not have the right people in the countries we are working in to ensure programmes are implemented properly," he said.
Several aid groups were critical of Bush's choice and said Tobias had little experience in development issues. In addition, his record as global Aids coordinator raised troubling questions, they said.
David Bryden, spokesman for the group Global Aids Alliance, said Tobias focused too much on programmes encouraging abstinence until marriage instead of promoting condom use to reduce the spread of Aids.
Tobias must be confirmed by the Senate before assuming his position as USAid chief.