"If they stay in the shadows," he said, some employers will exploit them, hurting wages and work conditions for all American workers.
Obama said illegal residents who have been in the United States a long time and have put down roots should have a mechanism for achieving legal status. They would have to learn English, pay a significant fine and "go to the back of the line" of those applying for legal entry, he said.
Obama has not listed immigration reform among the ambitious programs he is pushing this year. His remarks came at a meeting with about 1,300 people in this Los Angeles suburb.
Former President George W. Bush backed a similar immigration program, but it died in Congress amid heavy criticisms, especially from those saying too many illegal immigrants have been allowed to enter the country.
Obama visited the area Wednesday to promote his $787 billion economic stimulus and to tape an appearance Thursday on "The Tonight Show With Jay Leno."
At the town hall meeting, Obama portrayed himself as an elected official helping average Americans battle entrenched interests from Washington and Wall Street regardless of the political cost.
When a woman at a California event asked if he plans to seek re-election in 2012, Obama replied: "If I could get done what I think needs to get done in four years, even if it meant that I was only president for four years, I would rather be a good president to take on the tough issues for four years than a mediocre president for eight years."
He defended his ambitious plan to overhaul health care, energy, education, taxes and spending policies in the coming months. "I know some folks in Washington and on Wall Street are saying we should focus on only one problem at a time: 'our problem,"' Obama said. "But that's just not the way it works," he told a crowd of 1,300 in a hot auditorium. "You don't get to choose between paying your mortgage bills or your medical bills."
The government must tackle multiple challenges at once, he said.
Obama said he was happy to get out of Washington because the conversation and the weather are much nicer in Southern California.
Obama said people in Washington too often are busy figuring out who deserves blame instead of repairing the problems. He invited people to turn to him instead, saying he didn't cause the economic problems facing the nation but he must fix them.
Obama said political bickering has hurt the country and promised brighter days ahead.
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