US President Barack Obama says the US has opened a "new chapter" in diplomacy after the Arab Spring uprisings.
In a speech at the state department, Mr Obama said the future of the US was bound to the Middle East by forces of economics, security, history and fate.
"It will be the policy of the US to promote reform, and to support transitions to democracy," he said.
The speech was Mr Obama's first comprehensive response to revolts sweeping the Arab world, analysts say.
"We face a historic opportunity," he said. "We have a chance to show that America values the dignity of a street vendor in Tunisia more than the raw power of the dictator."
"As Americans have been seared by hostage taking, violent rhetoric, and terrorist attacks that have killed thousands of our citizens - a failure to change our approach [in the Middle East] threatens a deepening spiral of division between the United States and Muslim communities," Mr Obama added.
Key points in Mr Obama's speech:
- In the months ahead the US must use all its resources to encourage reform in North Africa and the Middle East
- Will cut $1bn of debt for a democratic Egypt and work to create Enterprise Funds to invest in Tunisia and Egypt
- Syrian President Bashar al-Assad must lead a political transition or "get out of the way"
- US will continue to insist the Iranian people deserve their universal rights, and a government that does not smother their aspirations
- Mass arrests and brute force in Bahrain are at odds with the universal rights of Bahrain's citizens.
- The borders of Israel and a Palestinian state should be based on pre-1967 borders with agreed swaps
On the stalled Israeli-Palestinian peace process, Mr Obama said it was "up to the Israelis and Palestinians to take action".
"No peace can be imposed upon them, nor can endless delay make the problem go away," Mr Obama said.
"But what America and the international community can do is state frankly what everyone knows: a lasting peace will involve two states for two peoples."
President Obama said the borders of Israel and a Palestinian state should be based on pre-1967 borders, referring to those that existed before the Six-Day War.
The approach was immediately rejected by Israeli Prime Minister Benjamin Netanyahu, who called the 1967 lines "indefensible".
In a statement issued shortly after Mr Obama's speech, Mr Netanyahu said such a withdrawal would endanger Israel's security and leave major Jewish West Bank settlements within Palestinian territory.
Mr Obama is set to meet Mr Netanyahu on Friday in Washington.
In his speech, the US president also warned Palestinians that efforts to "delegitimise" Israel would fail, and that efforts to isolate Israel at the UN general assembly September would not achieve the Palestinian goal of an independent state.
"Palestinians will never realise their independence by denying the right of Israel to exist," he said.
'Carrot and stick'
The BBC's Kim Ghattas, in Washington, says that following the death of al-Qaeda chief Osama Bin Laden, President Obama wants a new start with the Muslim world, although polls show opinions of the US are low.
Mr Obama said that Bin Laden, who was killed by special forces this month, was not a martyr but a mass murderer whose ideas were being rejected even before he was killed.
"Bin Laden and his murderous vision won some adherents," Mr Obama said. "But even before his death, al-Qaeda was losing its struggle for relevance, as the overwhelming majority of people saw that the slaughter of innocents did not answer their cries for a better life.
"By the time we found Bin Laden, al-Qaeda's agenda had come to be seen by the vast majority of the region as a dead end, and the people of the Middle East and North Africa had taken their future into their own hands."
Analysts say Mr Obama's speech is an attempt to convince his US audience that the fate of countries in the Middle East and North Africa is worth the money and effort even during difficult economic times at home.
To his wider audience, Mr Obama wants to underline that Washington stands behind those seeking greater human rights.
Mr Obama's address comes during a time when the Middle East is undergoing unprecedented change.
The push for democracy began with the overthrowing of Tunisian President Zine al-Abidine Ben Ali in January. Egyptian leader Hosni Mubarak was later toppled in Egypt, with demonstrators in Libya currently working to overthrow dictator Moammar Gaddafi.
Similar uprisings are also taking hold in Bahrain, Yemen and Syria.
On Wednesday, the White House imposed sanctions on Syria's president.
It was the first time Washington had personally penalised the Syrian leader over the actions of his security forces. More than 850 people have died since the uprising began in March.