He sternly urged both men to do more to make Middle East peace talks possible. It was the first Israeli-Palestinian meeting since Netanyahu took office in March.
The session came after Obama met individually with both leaders on the sidelines of the United Nations General Assembly session on climate change.
"The United States is committed to a just, lasting and comprehensive peace in the Middle East that includes a settlement of the Israeli/Palestinian conflict that results in two states: Israel and Palestine, in which both the Israeli and Palestinian people can live in peace and security and realize their aspirations for a better life for their children," Obama said as the meeting got underway.
Neither Netanyahu nor Abbas spoke during a brief appearance before reporters.
More meetings are scheduled, not between the two leaders specifically, but between Israeli and Palestinian negotiators and U.S. envoy George Mitchell in Washington next week aimed at kick-starting a formal peace process.
Obama has asked Secretary of State Hilary Clinton to report back to him on the progress of those meetings.
Last week, Mitchell failed last week to bridge the gap between the two sides on the issue of Jewish settlements in Palestinian territory.
Obama wants Israel to freeze all settlement construction, a condition for Abbas to resume peace negotiations, but Netanyahu has committed only to a partial halt.
In Israel, Netanyahu’s refusal to freeze settlements hasn't gone far enough for hardliners.
"I am afraid that Prime Minister Netanyahu might go farther with his policy of making further concessions to the Palestinians, and it does not bring peace any clos...