US President Barack Obama insisted that only government can jolt the economy out of deep recession and offered an olive branch to longtime foe Iran, scrapping years of past US policies.

Taking his case directly to the recession-weary American people, Obama used his first White House news conference to exhort Congress to act in the coming week on an $800 billion economic stimulus package expected to help define his young presidency.

Obama, who won the White House on a promise of change after eight years of George W Bush, signaled his intention to keep making clean breaks with the past on everything from the role of government to the wisdom of talking to the United States' enemies.

"With the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life," the Democratic president said during a televised prime-time appearance in the East Room of the White House 20 days after his inauguration.

It was effectively a repudiation of Ronald Reagan's "small government" legacy, a Republican doctrine Bush pushed for much of his tenure but which he was forced to abandon when aides urged massive intervention to prevent financial collapse.

Obama declared that a massive new government program was now needed without further delay to tackle what he termed "the most profound economic emergency since the Great Depression" and prevent a full-blown crisis from becoming a catastrophe.

Underscoring his efforts to reverse the most divisive parts of Bush's foreign policy, Obama said he saw the possibility of diplomatic openings with Iran in the months ahead. The West is locked in a nuclear standoff with Tehran.

"We will be looking for openings that can be created where we can start sitting across the table face-to-face, diplomatic overtures that will allow us to move our policy in a new direction," Obama said in a dramatic shift from Bush's strategy of seeking to isolate Iran instead of engaging it.

Sandwiched between campaign-style trips to economically blighted areas in Indiana and Florida, the news conference gave Obama a chance to pitch his solutions for the financial meltdown and deepening recession.

The new Democratic president also hoped to regain momentum following a week in which a key cabinet nominee withdrew in a flap over unpaid taxes and his push for the stimulus plan hit unexpected snags in the Democratic-led Congress.

It remained to be seen, however, whether his words -- spoken in the calm, deliberative tone that helped him win the presidency -- would be enough to ease Americans' anxieties and stabilize jittery world markets.

Despite a split along party lines, the US House of Representatives approved an $819 billion economic recovery plan last week.

Just hours before Obama stood in front of the cameras, the Senate moved a step closer to passing its own bill, setting up a vote on a $838 billion emergency package on Tuesday.

But delays in fashioning compromise legislation, a mix of government spending and tax breaks, could prevent Congress from delivering a final bill to Obama by his deadline this weekend.

Republican National Committee chairman Michael Steele, in his party's response to Obama, said the Democratic-crafted stimulus bills were "filled with unnecessary and wasteful programs."    

Obama bristled at such criticism, saying the Republicans' failed policies had put the country on a path of huge deficits that he has inherited. "This notion that somehow I came in here just ginned up to spend $800 billion, you know, I mean, that ... wasn't how I envisioned my presidency beginning," he said.

While the economy topped the agenda, Obama also offered some of his most conciliatory language so far toward Tehran.

His more diplomatically focused approach to Iran is seen as an important linchpin in fixing t