Netanyahu's White House visit came three days after Obama placed a 15-minute call to Iranian President Hassan Rouhani, marking the first time that the presidents of the two nations have spoken since the Islamic revolution ousted the U.S.-backed shah in 1979.
Obama said Friday that he had directed Secretary of State John Kerry to engage in negotiations over Iran's uranium-enrichment program, which the United States, Israel and other nations think is a cover to develop nuclear weapons. Iranian officials have denied that intent.
Obama said he told Netanyahu that international economic sanctions have put pressure on the Iranian regime to negotiate over its nuclear program.
"We have to test diplomacy," Obama said.
However, he added that Iran must negotiate in good faith and emphasized that he will not take a U.S. military option off the table if progress falters. Netanyahu called on Obama to ramp up the sanctions if Iran delays the diplomatic process or does not live up to a negotiated agreement.
"Both the prime minister and I agree, since I came into office, that it is imperative that Iran not possess a nuclear weapon," Obama said, adding: "We do not want to trigger a nuclear arms race in the most volatile region in the world."
Obama has cautiously opened the door to Rouhani, a relatively moderate leader elected in June. Two weeks ago, White House officials offered the Iranian president an informal meeting with Obama at the U.N. General Assembly in New York. The Iranians turned down that offer, citing scheduling complications, but reportedly called the White House on Friday to indicate that Rouhani would be open to a phone call.
"I do believe that there is a basis for resolution," Obama told reporters in Washington on Friday after he spoke with Rouhani. "Iran's supreme leader has issued a fatwa against the development of nuclear weapons. President Rouhani has indicated that Iran will never develop nuclear weapons."
At the same time, Obama has sought to assure Israel that the United States will demand concrete steps from Iran in any nuclear pact and has emphasized that his Middle East priorities in his second term include a peace deal between Israel and the Palestinians.
Obama and Netanyahu discussed the peace process, as well as a U.S.-led U.N. Security Council resolution that demands that Syria turn over control of its chemical weapons to international inspectors by next year. Vice President Joe Biden, speaking at the National J Street Conference on Monday afternoon, said he also attended the meetings with Netanyahu.
"We don't know whether Iran is willing to do what is necessary to get there, but we, along with the permanent members of the U.N. Security Council and Germany, are committed to finding out," Biden said.
Israeli leaders fear that the international community, and the United States in particular, is in danger of being duped by the Iranians. One official compared the Americans to tourists wandering into a Middle East bazaar.
"The Persians have been using these tactics for thousands of years, before America came to be," said a senior Israeli official, who spoke on the condition of anonymity because Netanyahu has asked his government to remain silent until he addresses the U.N. General Assembly meeting this week in New York. "We are worried Obama is looking for a way out."
The Israelis find themselves in a delicate situation. They want to make a tough case for keeping the pressure on Iran and demanding that it disassemble that part of its nuclear program that they fear could lead to a weapon. At the same time, they want to make the case without suggesting that the U.S. president is a fool to engage with Tehran.
Israeli officials also suggested that Netanyahu might present new evidence of Iran's nuclear program at the United Nations.
"Netanyahu is a PR person, and he may have a surprise up his sleeve to present on Tuesday at the U.N.," said Itamar Rabinovich, a former Israeli ambassador to the United States who is a scholar at Tel Aviv University.
"Of course, Israel, like other countries, would welcome a political and diplomatic resolution to the Iranian crisis," Rabinovich said. "But Israel is first and foremost being threatened by Iran and is in a more sensitive situation than other places. It is concerned that the U.S. and other Western powers will settle for less and, at the minimum, will continue to fall into a trap, allowing the Iranians to buy time and push their program."
Booth reported from Jerusalem. Ruth Eglash in Jerusalem contributed to this report.