The president said his efforts to improve the relationship between Muslims and the West have been "earnest" and "sustained". Still, he said the progress is "incomplete" and there is more work to do.
Though issues of terrorism and extremism often dominate the tensions between the Muslim world and the West, Mr Obama said the relationship must expand beyond security issues.
"What we're trying to do is make sure that we are building bridges and expanding our interactions with Muslim countries," Mr Obama said during a joint news conference with Indonesia's President Susilo Bambang Yudhoyono.
The president, at a news conference in the world's largest Muslim country, also criticised Israel's plans to build new apartments in disputed East Jerusalem.
"This kind of activity is never helpful when it comes to peace negotiations," Mr Obama said.
Mr Obama's visit to Indonesia, the second country on his 10-day Asia trip, is a homecoming for the president. He spent four years in Indonesia as a boyafter his mother married an Indonesian man, and his return was highly anticipated.
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