George W. Bush also told the Democrat-dominated Congress in his speech on Monday that major breakthroughs were being made in Iraq, almost five years after the U.S.-led invasion.
The president's seventh State of the Union speech was overshadowed by the party primaries, in which Republican and Democrat candidates are seeking voters' support to run for the presidency at the November election. While Democrat hopefuls Hilary Clinton and Barack Obama attended the address, Republican contender John McCain pressed on with his campaign for the Florida caucus.
On the economy, which has been hit by factors including the subprime mortgage crisis that prompted the Federal Reserve to slash refinancing rates last week, Bush acknowledged that the nation is losing confidence.
"As we meet tonight, our economy is undergoing a period of uncertainty... At kitchen tables across our country, there is concern about our economic future," he said.
However, he assured that "in the long run, Americans can be confident about our economic growth."
The president called on Congress to pass a $150 billion package of tax credits and rebates for families and businesses to stave of a recession. The House of Representatives is set to vote on the bill later today.
"This is a good agreement that will keep our economy growing and our people working. And this Congress must pass it as soon as possible," Bush said.
On the unpopular Iraq war, Bush defended his decision last year to send an additional 30,000 troops to the volatile country, and rejected pressure from Democrats to announce a withdrawal timetable.
He said the troop "surge" had "achieved results few of us could have imagined just one year ago."
"When we met last year, militia extremists - some armed and trained by Iran - were wreaking havoc in large areas of Iraq. A year later, coalition and Iraqi forces have killed or captured hundreds of militia fighters."
"Any further drawdown of U.S. troops will be based on conditions in Iraq and the recommendations of our commanders," he said.