WASHINGTON - President Obama called Wednesday for sharply limiting Israel's blockade of the Gaza Strip in the wake of the botched Israeli naval raid that is straining U.S. and Israeli relations with allies around the world. The White House also announced a $400 million aid package for Gaza and the West Bank.

"The situation in Gaza is unsustainable," Obama declared as he met with Palestinian Authority President Mahmoud Abbas in the Oval Office. He said the attention of the world was on the problem because of the "tragedy" of the Israeli raid that killed nine people trying to take in supplies.

Obama called for narrowly tailoring Israel's broad blockade on goods entering the Gaza Strip so that arms are kept out, but not food, building materials, or other items needed for Palestinians' daily life and 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," Obama said. "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 three-year-old blockade, which Israel says is needed to keep arms away from the extremist Hamas movement, which controls Gaza. Critics say the blockade is ineffective and causes undue suffering. Obama said the United States would discuss the new approach with European leaders, Egypt, Israel, and the Palestinian Authority.

The $400 million in aid the president announced for the West Bank and Gaza is meant to improve access to clean drinking water, create jobs, build schools, and address health, housing, and other needs. Abbas welcomed the aid package as a positive sign "that the United States cares about the people in Gaza and about the suffering of the Palestinian people.

"We also see the need to lift the Israeli siege of the Palestinian people, the need to open all the crossings, and the need to let building material and humanitarian material and all the necessities go into the Palestinian people," said Abbas, whose influence over Gaza is slight, since his forces were routed when Hamas took over the area in 2007. He and his more moderate Fatah movement lead the West Bank, the other Palestinian territory.

The meeting came shortly after Israel's deadly May 31 raid on a flotilla hoping to break the blockade on Gaza. Israel says its soldiers opened fire only after being attacked, while the flotilla activists accuse Israel of using unnecessary violence.

Israeli Prime Minister Benjamin Netanyahu had been scheduled to visit the White House on June 1 but canceled the visit to deal with the crisis. His visit is being rescheduled, and White House officials said that could happen by the end of the month.

The Abbas visit, scheduled before the flotilla raid, had been expected to focus on peace talks between the Israelis and Palestinians, now proceeding with U.S. envoy George Mitchell shuttling between the two parties. The eventual goal is to move to direct talks.

Despite the uproar over the flotilla raid, Obama said he anticipated that significant progress could be made.