Mr Netanyahu's statements angered the White House, even though he has since tried to soften his remark.
Tensions between the US and Israel have been growing as the leaders have wrangled over a number of issues.
But Mr Obama described his relationship with Mr Netanyahu as "businesslike."
"I've met with him more than any other world leader," the president said claiming their personal relationship was not a major factor in the dispute. "He is representing his country's interests the way he thinks he needs to, and I'm doing the same."
"So the issue is not a matter of relations between leaders; the issue is a very clear, substantive challenge," he said. "This can't be reduced to a matter of somehow let's all hold hands and sing 'Kumbaya'."
Earlier on Tuesday, Israeli officials denied reports that Israel was spying on the US-led talks.
Mr Netanyahu has taken issue with the United States' role in the nuclear negotiations, which he claims would create security risks for Israel.
At the same time, Mr Obama has denounced his counterpart's pre-election statements rejecting creation of a Palestinian state.
Responding to reporters' questions on Tuesday during a news conference originally intended to brief the press on the situation in Afghanistan, President Obama refused to comment on the spy claims first reported in the Wall Street Journal.
He did, however, offer assurances that Israel and other regional partners have been briefed on the negotiation's progress.
Mr Obama also took to time to say that Mr Netanyahu's attempts to qualify his pre-election statements were not effective in advancing a two-state solution.
"I think it's hard to envision how that happens based on the prime minister's statements," he said.
"I've said before and I'll simply repeat:  Prime Minister Netanyahu, in the election run-up, stated that a Palestinian state would not occur while he was prime minister.  And I took him at his word that that's what he meant," the president said.
In a US TV interview, Mr Netanyahu said he wanted a two-state solution, but said "circumstances have to change".
Mr Obama acknowledged that Mr Netanyahu did not say a Palestinian state would "never" be created.

Inflation, as measured by the Consumer Prices Index, rose by 0.3%. It was helped by smaller falls in food and fuel prices than a year ago.
Annual inflation has been below the Bank of England's 2% target for two years, and last year it was zero.
The BoE said earlier this month that it expected inflation to stay below 1% this year.
North Sea oil prices dropped to a 12 year low of $27.10 last month and have almost halved over the past 12 months.
But the Office for National Statistics measure of fuels and lubricants costs was only 7.3% lower than in January 2015, the smallest drop since November 2014.
Continuing low inflation makes the chance of an interest rate rise in the near future unlikely.
Few economists expect the BoE to raise rates before late this year at the earliest, and some analysts see a risk that the BoE could instead have cut to rates below the record low of 0.5% where they have been for almost seven years.
Financial markets do not currently expect interest rates to rise until the end of the decade due to concerns including a global economic slowdown and continuing low oil prices.
Food prices fell by 0.6% between December and January as opposed to a 1% fall a year earlier.
Supermarkets have been engaged in a long-running price war, and discounters such as Aldi and Lidl continue to take market share from the "big four" supermarkets - Tesco, Asda, Sainsbury's and Morrisions.
But the ONS said alcohol prices rose 5.2% between December and January, with spirits increasing by 7.5%, beer climbing by 3.6%, and wine up 4.8%.

The 26-year-old has been without a club since leaving Blackpool at the end of last season.
He started his career with Aston Villa before joining Scottish side Hibernian in August 2011.
Osbourne, who is new Iron manager Mark Robins's first signing for the club, could make his debut against Colchester on Saturday.
US President Barack Obama says prospects for a two-state solution in the Middle East are "dim" after the Israeli prime minister vowed to oppose a Palestinian state.
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UK inflation edged up to a 12 month high in January, as a fall in petrol prices eased.
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Scunthorpe United have signed free-agent midfielder Isaiah Osbourne on a three-month deal.