"Over time, in the absence of peace with Palestinians, Israel will continue to be threatened militarily and will have enormous problems on its borders," he said.
Obama is due to travel to the Middle East this week for an important speech on US-Muslim relations in the Egyptian capital, Cairo, and for talks with Saudi Arabia's King Abdullah bin Abdulaziz Al-Saud in Riyadh.
In recent weeks, Obama has also held talks with Jordan's King Abdullah, Mahmoud Abbas, the Palestinian president, and Benyamin Netanyahu, the Israeli prime minister.
Obama reiterated his call for Israel to stop settlement construction after talks last week with Abbas in Washington, one of the most contentious issues in the Middle East conflict.
He said "stopping settlements" was part of Israel's responsibility under the 2003 "road map" peace plan, and reiterated his commitment to a Palestinian state.
Obama said he was "a strong believer in a two-state solution" to the Middle East conflict.
His comments followed earlier statements from Hillary Clinton, the US secretary of state, who said Obama had made his position "very clear" to Netanyahu during their talks that settlement construction had to stop.
Israel has rebuffed such urges, with Mark Regev, spokesman for the Israeli government, saying that "normal life" would be allowed in settlements in the occupied West Bank, in effect meaning construction would continue to accommodate population growth.
On Tuesday, Ehud Barak, the Israeli defence minister, lobbied the US to review its demand to curb Jewish settlements in the West Bank, saying a total freeze on expansion "would not be reasonable".
Barak asked for greater flexibility on the issue when he met James Jones, the US national security adviser, said an Israeli official, adding that the minister's US visit "is part of a long process of trying to manage this dispute".
Barak is scheduled to meet Joe Biden, the US vice-president, and Robert Gates, the US defence secretary, later this week.
The Obama administration has been pushing a "road map" for a two-state solution, which requires Israel to stop expanding its settlements on occupied land where Palestinians are seeking to form a state.
The Palestinians say the settlements - built on land Israel occupied in the 1967 Middle East war and deemed illegal internationally - could deny them a viable and contiguous state and that expansion activities undermine efforts to negotiate a peace agreement.
About 500,000 Israeli setters live in more than 100 settlements that Israel has built since its 1967 occupation of the West Bank and East Jerusalem, territory in which almost three million Palestinians live.