WASHINGTON - US President Barack Obama urged Thursday that Israel sharply limit its blockade of the Gaza Strip in the aftermath of the botched Israeli naval raid that is straining US and Israeli relations with allies around the world. He also unveiled 400 million dollars of US aid for Gaza and the West Bank for housing, education and infrastructure, calling the humanitarian situation "unsustainable," and warned a Palestinian state was the only long-term solution. Welcoming Palestinian president Mahmud Abbas to the White House, Obama promised the "full weight" of US diplomacy on the latest crisis and to coax Israelis and Palestinians out of a "dead end" and into direct peace talks. "The situation in Gaza is unsustainable," Obama said as he met with Palestinian President Mahmoud Abbas in the Oval Office. He said the attention of the world is on the problem because of the "tragedy" of the Israeli raid that killed nine people trying to transfer supplies to the Israel-blockaded Gaza. Obama suggested that Israel narrowly tailor its broad blockade on goods entering the Gaza Strip so that arms are kept out, but not items needed for the Palestinians' daily life and economic development. "The key here is making sure that Israel's security needs are met but that the needs of people in Gaza are also met," said Obama. "So if we can get a new conceptual framework...it seems to me that we should be able to take what has been a tragedy and turn it into an opportunity to create a situation where lives in Gaza are actually directly improved." The approach marked a shift although it stopped well short of meeting international calls for an end to the 3-year-old blockade, which Israel says is needed to keep arms away from the militant Hamas movement that controls Gaza.