Chants of "U-S-A, U-S-A" greeted the president as he took the stage in Dearborn, Michigan.
"I regret that I wasn't here a few weeks ago when the statue came down," Mr. Bush said after the applause that greeted his appearance ended.
Mr. Bush said he was confident democracy can flourish in Iraq and said people who were skeptical about the war were wrong.
"There were some in our country who doubted the Iraqi people wanted freedom or they just couldn't imagine they would be welcoming a liberating force. They were mistaken," he said. "We know why: The desire for freedom is not the property of one culture, it is the universal hope of human beings in every culture."
Mr. Bush brought the crowd to its feet repeatedly – once when he promised to catch the looters of Iraq's museums, and again when he pronounced economic sanctions against Iraq "pointless."
"It is time for the United Nations to lift the sanctions so the Iraqis can use their own resources to build their own prosperity," Mr. Bush said.
"It will be a hard journey every step of the way, but Iraq will have a steady friend in the American people," he said. Mr. Bush brought a last rousing cheer as he left the building when he kissed Imam Hassan Qazwini on both cheeks.
Iraqis here constitute a large chunk of the roughly 300,000 people of Middle Eastern descent in greater Detroit; nearly 30,000, or 30 percent, of Dearborn's population claimed Arab ancestry in the latest census.
"I just would like to be able to thank President Bush for coming here," said Emad Alkasid, who came to the United States in 1994 and hopes to return to help rebuild the country.
"We're just hoping to see everything done that will make Iraq the country it is supposed to be."
But not all who came to the Ford Community and Performing Arts Center — the site of Mr. Bush's afternoon speech in Dearborn — approved of the list of those who met with the president.
"Who are they to speak for us?" Saleh Dhalebi asked outside the venue prior to the president's arrival.
"Did they get beaten, have their families killed? No," said the 28-year-old from Dearborn.
Before the speech, President Bush promised 17 Iraqi-Americans in a meeting that the United States would bring stability, freedom and democracy.
Mr. Bush cut off a discussion between a founder of the Kurdish National Congress of North America and a Basra, Iraq native who began debating whether Iraq should be carved into two or more autonomous regions.
"We're not going to have a debate on the form of the government," Mr. Bush said firmly. "This debate is going to take place within Iraq."
A group of Iraqis in Michigan wrote a communique outlining their hopes for their native country. It asks that "Iraqis be allowed to be the masters of their own destiny," said Jafar al-Musawi, a Dearborn-based Iraqi writer.
The administration has been trying to build bridges to Arab-Americans in Michigan. Two months ago, during the run-up to war, Deputy Defense Secretary Paul Wolfowitz convened a town hall meeting of Iraqi-Americans in Dearborn, asking his audience to help the U.S. government oust Saddam.
Wolfowitz says about 150 Iraqis who have been living in the United States or Europe have volunteered to go back to help establish a democratic government, and some already have gone.
More than 18 months before the next presidential election, Mr. Bush is unabashedly making battleground states the focus of his travels.
Mr. Bush lost Michigan to Democrat Al Gore and seems determined not to repeat the defeat. His visit Monday is his ninth as president.
Mr. Bush's speech was telecast live by al-Jazeera, al-Arabiya and Abu Dhabi television, leading satellite stations widely viewed throughout the Arab world.