President Barack Obama struck a balance between grim economic reality and a more hopeful outlook on Tuesday to try to reassure worried Americans their country will emerge from crisis stronger than before.

Riding high in opinion polls, Obama was careful to include a sober assessment of the economy in his first speech to Congress, seeking to temper expectations that his administration's rescue efforts would yield quick fixes.

But the politician whose memoir was called The Audacity of Hope and who won the White House in last November's election amid chants of yes, we can was also back in stride, telling recession-weary Americans they can expect better days ahead.

While our economy may be weakened and our confidence shaken, though we are living through difficult and uncertain times, tonight I want every American to know this: We will rebuild, we will recover, Obama said in a televised speech five weeks after taking office.

And the United States of America will emerge stronger than before, he said to loud applause from lawmakers, cabinet members and invited guests.

The Democratic president wasted little time before leveling a barrage of indirect criticism at his Republican predecessor George W. Bush for the country's economic plight and bloated debt, warning that the day of reckoning had arrived.

Underscoring his break with some of Bush's more divisive policies that damaged America's image overseas, Obama also reiterated that the United States does not torture. He has ordered the closing of the internationally condemned Guantanamo Bay military prison where foreign terrorism suspects are held.

He also highlighted a shift in the U.S. military focus from Iran to Afghanistan, saying he would soon announce a way forward in Iraq that responsibly ends the unpopular war launched by Bush in 2003.

BROADER AGENDA, JITTERY MARKETS

First and foremost, however, Obama pressed the case for his economic plans while laying out a broader agenda, including a much-anticipated push for a healthcare overhaul and a stepped-up U.S. role in the fight against climate change.

The primetime State of the Union-style address to a joint session of the Senate and House of Representatives comes against a backdrop of growing anxiety across the country in the face of the worst financial meltdown in decades.

While his public support is strong, Wall Street remains skeptical of his economic remedies.

Jittery investors sent U.S. stocks to a 12-year low on Monday, but the markets rallied on Tuesday on Federal Reserve Chairman Ben Bernanke's assurances that the country's troubled banks should be able to weather the downturn without being nationalized.

Despite that, Obama said more money may be needed to fix debt-laden banks and revive the economy, warning that while the cost of action will be great, I can assure you that the cost of inaction will be far greater.

But he seemed to take a harder line against troubled U.S. automakers, saying that while he supports revamping the car business to make it competitive the government would not protect the companies from their own bad decision-making.

Trying to show he will make good on his promise of fiscal responsibility, Obama said he had identified $2 trillion in budget cuts over the next decade.

Obama, who rolls out his first budget proposal on Thursday, has vowed to halve the $1 trillion-plus annual deficit he inherited from Bush by the end of his term.

That may be difficult, critics say, if he moves swiftly on his pledge to undertake a costly healthcare overhaul while the economy is still slumping and tax revenues are down.

But some analysts were cheered by his words.

Obama is obviously trying to allay concerns that there will be a budget blowout. Whether he can deliver it or not is tough to say, but it is the rhetoric that matters, said Amy Auster, head of foreign exchange and international economics research at ANZ Bank in Melbourne.

CANDID REVIEW, SOME OPTIMISM

In what was sure to be his most closely watched speech since his inauguration, Obama offered a candid review. But with misgivings among some fellow Democrats that his tone has become too gloomy, he also injected a clear note of optimism.

Mindful that the recession tops the public's concerns, he devoted only a small portion of his address to foreign policy. That was in sharp contrast to his first days in office, when he quickly delved into Middle East diplomacy and launched reviews of unfinished wars in Iraq and Afghanistan.

The economy took center stage in Tuesday's speech.

The only way this century will be another American century is if we confront at last the price of our dependence on oil and the high cost of health care, the schools that aren't preparing our children and the mountain of debt they stand to inherit, he said.

Obama's first weeks in office have been marked by a $787 billion economic stimulus package, a retooled financial industry bailout program and a home mortgage rescue plan.

But he has also faced embarrassing miscues in the completion of his cabinet and criticism that some of his early financial proposals have been lacking in specifics.

Taking a page from Obama's upbeat tone as a candidate in delivering the Republican response, Louisiana Governor Bobby Jindal, a rising star in the opposition party and a potential presidential candidate in 2012, entitled his rebuttal Americans can do anything.

Jindal insisted Republicans were ready to work with him on the economy but also tore into the president and Democrats who control Congress for legislation he said will saddle future generations with debt.

(Additional reporting by David Alexander, Jeff Mason and Ross Colvin, Editing by Frances Kerry)

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