Obama, the first African-American projected to win the presidential nomination for a major US political party, said that Jerusalem must remain the "undivided" capital of Israel.
"Jerusalem will remain the capital of Israel and it must remain undivided," the Illinois senator said.
Obama drew a standing ovation as he addressed the gathering of one of US politics' most influential lobbying groups, and said that as president "I will never compromise when it comes to Israel's security".
He also said any deal between Israelis and Palestinians should preserve Israel's identity as a Jewish state and that Hamas should be isolated.
"We must isolate Hamas unless and until they renounce terrorism, recognise Israel's right to exist, and abide by past agreements," he said.
"There is no room at the negotiating table for terrorist organisations."
Obama's speech was received warmly by Ehud Olmert, Israel's prime minister, who called it "very impressive".
"His words on Jerusalem were very moving," Olmert told reporters after meeting George Bush, the US president, at the White House.
But Olmert refused to give a direct response to Obama's statement that Jerusalem will remain the undivided capital of Israel.
"Of course, if Obama is elected we will discuss with him all the issues if and when they are raised," Olmert said.
Hamas, however, reacted angrily, with Saeb Erekat, the senior Palestinian negotiator, telling Al Jazeera that Obama "was giving ammunition to extremists across the region".
"The danger from Iran is grave, it is real, and my goal will be to eliminate this threat"
Barack Obama, presumptive Democratic presidential candidate
"He runs on the slate of change, but he closes all doors for peace by saying Jerusalem should be the united capital of Israel."
Mahmoud Abbas, the Palestinian president, also rejected Obama's speech.
"Jerusalem is one of the files under negotiation. The entire world knows perfectly well that we will never accept a state without [east] Jerusalem [as its capital]. That should be clear," he said in Ramallah.
Obama, who pledged to approve $30bn in aid to Israel over the next 10 years, said he was not opposed to holding talks with "appropriate" Iranian leaders using "tough and principled diplomacy".
Action against Iran
Obama also vowed to do "everything in my power" to prevent Iran from obtaining a nuclear weapon.
In his first major foreign policy speech since announcing he had clinched the nomination, the Illinois senator did not explicitly rule out military action against Tehran.
"The danger from Iran is grave, it is real, and my goal will be to eliminate this threat," he said.
The Illinois senator's comments come a day after US media projected that Obama had enough delegates to win the Democratic nomination and face John McCain, the presumptive Republican candidate, in the November election.
His Democratic opponent, Hillary Clinton, who also spoke at the conference later on Wednesday, has so far refused to concede the race.
|Obama said a unified Jerusalem should |
be the capital of Israel [AFP]
Speaking shortly after Obama, Clinton said the US's "next president must be a Democrat and that Obama "will be a good friend to Israel".
Al Jazeera's Rob Reynolds said the subtle language indicated Clinton was no longer running for the presidency but she still would not say she had suspended her campaign.
Republicans have criticised Obama for his offers to talk to Iran, but Obama countered in his speech that it was the failed policies of George Bush, the US president, in Iraq that had made Israel less safe.
Al Jazeera's senior political analyst Marwan Bishara said that Obama drew a Middle East map very similar to his Republican predecessors.
However, he distanced himself from the current administration's approach by criticising their positions as not only bad to US interests but also to those of Israel.
He also offered more than just sanctions but the option of "harsh" diplomacy, in a more multilateral approach than previous administrations.
Some Aipac attendees, however, liked what they heard.
"I was essentially very impressed - I am a Hillary supporter but I was looking for Obama to fill in the void that many Jewish voters saw in his platform and I was reassured that, despite all the rumours, he is supporting Israel," Marlene Goldenberg, 22, a student from Syracuse in New York state, told Al Jazeera.
Reverend Julius Hope, a Christian pastor from Detroit, said Obama had done more than enough to dispel any doubts that supporters of Israel may have had about him.
"He made sure that everyone understands - come hell or high-water - that he'll be there for Israel."