In a commencement address at the US Military Academy in New York, Mr Obama laid out a broad approach to foreign affairs for the remainder of his presidency that shifts the fight against terrorism from Afghanistan to wider threats elsewhere in the world.
Mr Obama's tendency to rely on diplomacy has drawn fire from Republicans in Congress and many foreign policy pundits.
One of the areas covered was Syria. Mr Obama defended his decision not to intervene militarily there and expressed a willingness to expand assistance to Syrian opposition groups who are trying to oust President Bashar al Assad.
He said: "As President, I made a decision that we should not put American troops into the middle of this increasingly sectarian war, and I believe that is the right decision.
"But that does not mean we shouldn't help the Syrian people stand up against a dictator who bombs and starves his own people."
He said the administration would work with Congress to ramp up support for groups who "offer the best alternative to terrorists and brutal dictators." He added that more resources would be given to Syrian neighbours Jordan, Lebanon, Turkey and Iraq as well.
Mr Obama also announced plans for a $5 billion counterterrorism fund aimed at training and equipping partners in other countries to fight violent extremism.
On Tuesday, he outlined a plan to withdraw all but 9800 US troops from Afghanistan by the end of the year and the rest by 2016.
The president's focus on diplomacy and reluctance to use military might has prompted some foreign diplomats to bemoan privately what they regard as a lack of US leadership.
Senator Bob Corker, the senior Republican on the Senate Foreign Relations Committee said: "There's an extreme indecisiveness and cautiousness that worries people."
Mr Obama defended using multilateral institutions to address global problems. He said US leadership helped the world isolate Russia after its intervention in Ukraine and pointed to the possibility of a breakthrough with Iran over its nuclear programme.
Critics fault him for not intervening in Syria, not being more effective at countering China's assertiveness in the South China Sea and Russia's annexation of Crimea.
White House officials say Americans are weary of war.
Meanwhile, outgoing Afghan President Hamid Karzai welcomed a US decision to withdraw all troops by the end of 2016.
Mr Karzai had been opposed to signing a security agreement with Washington which would leave a small contingent of US troops in the country beyond 2014.
A statement from Mr Karzai's palace said: "The president is calling on insurgents to use this historic opportunity and end the war."
Afghanistan is due to hold the second round of voting in an election to elect Mr Karzai's successor on June 14.
The US plan hinges on Afghanistan's next president signing the Bilateral Security Agreement (BSA) that the US says it needs in order for troops to stay beyond 2014. Both candidates in the run-off say they will sign it promptly.