U.S. President Barack Obama delivered his annual State of the Union address Tuesday night, pledging to rein in spending and create more jobs while defending his signature policies such as healthcare reform. In charting his policy direction, Obama mapped out his way towards a tough re-election campaign, in which he must win back the hearts of the public while battling a resurgent Republican party.

Shifting to the center

Obama is facing a markedly more hostile Congress this year, as the GOP now controls the House of Representatives and Democrats hangs on to Senate majority by a thread. House Republicans, who won the midterm elections last November, pledging to rein in spending and cut deficit, have been calling to cut spending on domestic programs to 2008 levels.

The situation is not unlike what former President Bill Clinton faced in 1995, when the president's party lost resoundingly to the Republicans in midterm elections. In heeding outside calls and re-conceiving his presidency, Clinton won re-election in 1996, and now it is widely expected that Obama will try to follow suit.

Obama did exactly that.

Heeding public anger over federal spending and deficit, he used the State of the Union address to announce sweeping spending cuts, extending another two years the three-year partial freeze of domestic programs that he suggested in 2010, which he said would reduce the deficit by more than 400 billion U.S. dollars over the next decade.

William Galston, an expert in government studies at Brookings Institution, suggested Obama's challenge now is to build on the modest forward momentum he has gained after the midterm "shellacking," by offering an agenda that "simultaneously appeals to a broad swath of the electorate and that addresses the structural economic and fiscal problems the United States faces."

Obama has already been shifting to the center after the midterm elections. He struck a well-received economic compromise with the Republicans, giving the GOP the extension of the Bush tax-cuts they want while getting the renewal of unemployment benefits he wanted.

Obama also honored his promise to repeal "Don't ask, don't tell" military ban on homosexuals to serve openly, and achieved bipartisan ratification of the arms control treaty with Russia.

With these achievements, the president's public standing has recovered significantly, and since he himself continues to enjoy public goodwill despite the repudiation of his party in the midterm elections. He stands to gain as the two parties squabble on Capitol Hill, as long as he can stabilize the economy and craft a new success story for the 21st century as he painted in the State of the Union address, according to Galston.

Investment for the future

In his address, Obama mapped out his vision of how to create such a success story, making the case for strengthening competitiveness by making investment in education and innovation, saying the efforts will act as the driving force for job creation and maintaining the country's competitive edge.

"We need to out-innovate, out-educate, and out-build the rest of the world," said Obama, saying "that's how we'll win the future."

He laid out his vision in a three-step effort that includes investment in spurring innovation, reform and investment in education and rebuilding out-dated infrastructure.

He urged Congress to get behind renewable energy and other scientific development and pay for it.

Obama said he will send a budget to Congress in a few weeks that includes investment in biomedical research, information technology, and clean energy technology. He said the investment will strengthen the country's security, protect the planet, and create new jobs.

These measures need the support from the business community, which voiced their opposition to the president's agenda in supporting the Republican party with millions of campaign donation and outside groups spending.

"At stake is whether new jobs and industries take root in this country, or somewhere else. It's whether the hard work and industry of our people is rewarded," the president said.

Brookings Institution's Galston said Obama has "stated his case and staked his ground" in the speech. "Now he faces the challenge of moving from vision to specifics, and of persuading a profoundly skeptical new Congress that growth will take more than spending cuts, that government is not a drag on the economy, but rather a vital partner in the task of spurring growth and creating jobs."

And therein lies Obama's route to reelection.