President George W Bush has admitted US economic growth is slowing, but in his final State of the Union address urged Americans to have long-term confidence.
The president acknowledged that the US was facing "uncertainty".
A $150bn (£76bn) stimulus plan negotiated with Congress would help, he said, and must be passed soon.
Mr Bush also said his troop "surge" in Iraq was succeeding after a long and costly war, and that al-Qaeda was "on the run" and would be defeated.
He called on Iran's leaders to cease their "support for terror abroad", although he said the US respected the country's people.
Democratic House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said that while they agreed with Mr Bush on the need for a bipartisan approach, he "offered little more than the status quo".
"At a time when our economy is on shaky ground and our leadership around the world is eroding, the status quo won't do," they said in a joint statement.
Mr Bush acknowledged that the US was "undergoing a period of economic uncertainty", but sought to reassure the nation.
"At kitchen tables across our country, there is concern about our economic future," he said.
But, he added: "In the long run, Americans can be confident about our economic growth."
Mr Bush urged Congress not to expand the economic stimulus package beyond what had been agreed, or risk derailing it. He also urged lawmakers to make his tax cuts permanent.
Echoing a theme of his 2006 address, when he spoke of the US being "addicted to oil", Mr Bush spoke about the importance of US energy independence.
"Our security, our prosperity and our environment all require reducing our dependence on oil," he said.
Mr Bush also urged Tehran to suspend its nuclear enrichment programme and "come clean" about its intentions.
He continued: "But above all, know this: America will confront those who threaten our troops, we will stand by our allies, and we will protect our vital interests in the Persian Gulf."
On Iraq, Mr Bush acknowledged that the "enemy is still dangerous and more work remains" to be done.
But he praised the work of American and Iraqi forces in achieving "results few of us could have imagined just one year ago", and assured Americans that al-Qaeda "will be defeated".
He urged Congress to "meet its responsibilities to these brave men and women by fully funding our troops".
Mr Bush said that as a result of progress in Iraq and a transition of operations to Iraqi forces, more than 20,000 troops would be returning to the US in the coming months.
Mr Bush said 20,000 troops would be withdrawn in the coming months
In the official Democratic reply to the president's speech, Kansas Governor Kathleen Sebelius said: "In this time, normally reserved for the partisan response, I hope to offer you something more: an American response.
"There is a chance, Mr President, in the next 357 days, to get real results and give the American people renewed optimism that their challenges are the top priority."
But the leading Democratic presidential candidates, Senators Barack Obama and Hillary Clinton, took much tougher lines.
Mr Obama said Mr Bush's speech was full of empty rhetoric, and criticised his "failed politics and policies of the past".
Mrs Clinton said Mr Bush had only offered "more of the same: a frustrating commitment to the same failed policies".
The two rival Democrats have been fighting a bitter campaign for the candidacy, and although they sat only metres away from each other in Senate for the address, they did not speak.
At one point, Mrs Clinton reached across to shake the hand of Senator Edward Kennedy, who hours earlier had endorsed Mr Obama.
As she did so, Mr Obama turned his back.
Republican candidate Senator John McCain stayed in Florida ahead of his party's primary in the state on Tuesday.
The State of the Union address, traditionally delivered once a year, is expected to be Mr Bush's last before he leaves office in January 2009.
He would, however, have the option to deliver one immediately before he goes.
According to Gallup polls of approval ratings around the time of the State of the Union addresses, this is the worst year for Mr Bush since his presidency began.
The BBC's James Coomarasamy in Washington says Mr Bush's speech was overall more businesslike than inspirational, perhaps more reflective of a more realistic president - aware that some of his policy goals would now remain elusive but determined that others would not.