"You can build a church on a site, you can build a synagogue on a site, if you could build a Hindu temple on a site, you should be able to build a mosque."
Obama's comments came amidst a controversy about a Florida pastor's plans to burn the Quran on the ninth anniversary of the Sep 11, 2001 terror attacks unless the proposed Islamic centre was moved away from ground zero in exchange for the burning being called off.
Obama said he recognised the sensitivity in the area because of the 9/11 attacks and acknowledges that family members are continuing to experience pain and anguish over their losses.
However, he urged people to remember who their real enemies are. "We are not at war against Islam. We are at war against terrorist organizations that have distorted Islam or falsely used the banner of Islam," Obama said.
"If we're going to deal with the problems ... (of) reducing the terrorist threat, we need all the allies we can get."
Obama pressed that in fact, the anti-Islam sentiment and a war between the West and Islam is exactly what terrorist organizations are hoping for.
"Al Qaeda, that's what they've been banking on," Obama said. "The overwhelming majority of Muslims are peace-loving - are interested in the same things that you and I are interested in."
Obama stressed it is important that Americans do not believe the entire religion of Islam is offensive.