On the last day of his historic visit to Cuba, the US leader laid out his vision for ending a standoff that began at the end of the 1950s when Fidel Castro and his leftist guerrillas drove out a US-backed government, and then became a fierce Soviet ally.
Obama earned repeated cheers and applause from the audience at the ornate Gran Teatro in Havana, which included Cuban President Raul Castro, as millions of Cubans watched on state-run television.
"Creo en el pueblo cubano," he said, then repeating himself in English: "I believe in the Cuban people."
Obama was cheered again when he called for Congress to lift the US embargo that has been in place for decades in a failed attempt to bring the communist government in Havana to its knees.
"It is an outdated burden on the Cuban people. It's a burden on the Americans who want to work and do business or invest here in Cuba," he said. "It's time to lift the embargo."
"I believe citizens should be free to speak their minds without fear, to organise and to criticise their government," he said.
"Yes, I believe voters should be able to choose their governments in free and democratic elections."
Each call for greater freedoms received applause -- an extraordinary event in a theater where the all-powerful Castro sat watching.
Immediately after the speech, Obama was due to meet at the US embassy with dissidents who are regularly harassed and sometimes arrested in Cuba.
However, tension erupted yesterday when the subject of human rights in the one-party state came up at a joint press conference, illustrating what Castro called "profound differences."
Castro went on to attack the United States for bringing up the human rights question when, he said, US rights were themselves inadequate when it comes to health care, social security, and "double standards.
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