WASHINGTON - President Bush told the American people Monday night that his strategy to stabilize Iraq is achieving results “few of us could have imagined just one year ago,” even as he sought to reassure the public that his new stimulus plan will stave off the recession that threatens to overtake the nation's economy during the final year of his presidency.

Appearing before Congress for his seventh and last State of the Union address, Bush claimed vindication for his controversial decision a year ago to send a “surge” of about 30,000 additional troops to Iraq. “The enemy is still dangerous and more work remains,” Bush acknowledged, but with high-profile attacks, sectarian violence and civilian deaths falling, he said progress is unmistakable.

“Some may deny the surge is working,” Bush said, “but among the terrorists there is no doubt. Al-Qaida is on the run in Iraq, and this enemy will be defeated.”

Bush made clear he is not ready to accelerate a drawdown of U.S. forces, which are scheduled to return to pre-“surge” levels of 130,000 by mid-summer. He cited a warning from Gen. David H. Petraeus, the top U.S. commander in Iraq, that pulling troops out too quickly risks the recovery of al-Qaida in Iraq and an increase in violence.

“Members of Congress,” he implored, “Having come so far and achieved so much, we must not allow this to happen.”

Bush's address highlighted the shifting priorities of an administration that had planned to focus its final year on the war and other international challenges, but has found itself moving quickly in the past month to address the burgeoning crisis in the economy. The past year has brought a growing tide of bad economic news for the Bush administration, culminating in last week's global stock market panic over a collapsing housing market and other financial woes in the United States.

The president called on Congress to finish work quickly on a $150 billion stimulus package, urging lawmakers not to “load up” the initiative with measures beyond the tax rebates and business incentives he agreed to last week with House leaders. “That would delay it or derail it, and neither option is acceptable,” Bush said.

The president sought to calm citizens' financial fears. “Our economy is undergoing a period of uncertainty, and at kitchen tables across our country, there is concern about our economic future,” Bush said. But, he added, “In the long run, Americans can be confident about our economic growth.”

The president did not seek to revive the kind of ambitious social reforms that animated his past State of the Union addresses, such as proposals to create private accounts for Social Security or provide a pathway to citizenship for illegal immigrants. Instead, he offered a mixture of familiar initiatives, mixed in with modest new proposals on education, social services and assistance for military families, that his aides said stand a reasonable chance of approval before this summer's political conventions start in late August.

One new proposal would devote $300 million to new grants for low-income children to attend religious schools. Bush proposed writing into law the rules requiring federal agencies to give equal consideration to religious-based groups providing social services to the poor.

Bush, whose administration has come under fire in recent years over the poor treatment of injured soldiers, also unveiled several initiatives aimed at boosting federal assistance to families of veterans and active service members. One proposal would give hiring preferences to military spouses throughout the federal government; another would allow soldiers and veterans to transfer unused GI education benefits to spouses and children.

Bush's remarks suggested he remains undaunted by the low approval ratings that have characterized his presidency in recent years. “We have unfinished business before us,” the president said, “and the American people expect us to get it done.”

Democrats chose a centrist red-state governor, Kathleen Sebelius of Kansas, to respond to Bush's address with a note of conciliation. “In this time, normally reserved for the partisan response, I hope to offer you something more: an American response,” Sebelius said.

While she described the stimulus package as only a “temporary fix,” she added, “There is a chance, Mr. President, in the next 357 days, to get real results and give the American people renewed optimism that their challenges are the top priority.”

Even as he struck a bipartisan tone, Bush made clear to the Democrats sitting before him that he intends to employ fully the powers of the presidency until his final hours in office. Bush said he will use his veto pen and administrative powers to try to rein in the proliferation of “earmarks,” the projects inserted by lawmakers into annual spending bills and totaling roughly $17 billion in the last budget.

Bush described such projects as wasteful government spending, and he warned he would veto any spending bill that does not cut in half the number and cost of earmarks from the year before. He also said he will be signing an executive order requiring his agencies to ignore any earmark not included in the language of legislation. “The people's trust in their government is undermined by congressional earmarks,” Bush said.

Bush's pledge on earmarks was met with skepticism from Democrats, and even some in the GOP, who noted that the practice increased dramatically while the Republican Party controlled Congress. “The number of earmarks exploded under Republican leadership in the House, and for six years President Bush did nothing to slow their growth,” said House Majority Leader Steny H. Hoyer, D-Md.

In keeping with the traditional civility of the occasion, Bush was greeted warmly as he entered the House chamber. As has been the custom, the White House invited a mix of prominent and ordinary citizens to sit with first lady Laura Bush as a way of humanizing some of the broader themes of the president's speech. Monday night the guests included a single mother from Tanzania who benefited from the U.S. global AIDS initiative; the co-chairs of his commission on health care for veterans; and several soldiers who served with valor in Iraq and elsewhere.

Bush devoted special attention to the two main issues that could shape long-term perspectives on his presidency, with the souring economy joining the war in Iraq as the major focus of his administration. He also promised that America will do “everything we can” to achieve a peace deal between Palestinians and Israelis, which has become a major goal in his final year in office.

On the economy, Bush painted a mixed picture. “In the short run, we can all see that growth is slowing,” he said. “America has added jobs for a record 52 straight months, but jobs are now growing at a slower pace. Wages are up, but so are prices for food and gas. Exports are rising, but the housing market has declined.”

He also outlined small initiatives that reflect his continued interest in putting a Republican stamp on social problems that have historically been the province of Democrats or liberal groups.

For example, he proposed a “Pell Grant for Kids” program that would provide $300 million in grant money to schoolchildren who attend underperforming public schools, letting them use the funds to attend parochial or other nonpublic schools.

The proposal is modest compared to the original Pell Grant program, which provided college students with nearly $13 billion in aid during the 2006-2007 school year, according to government figures. But the idea combines two of the Bush administration's policy hallmarks: a desire to offer “school choice” to disadvantaged students, and a focus on involving religious and faith-based organizations in federal government programs.

Bush also renewed his call to strengthen the No Child Left Behind Act, which set up a system of testing and other benchmarks for the nation's schools.

The prospects of such changes are uncertain, as is the future of trade agreements with Colombia, Panama and South Korea that Bush wants ratified. Bush also reiterated his demand that Democrats in Congress approve new surveillance legislation by Friday, when a temporary wiretapping law is set to expire.