President Bush last night bluntly told America to break its "addiction to oil" and make the nation's energy dependency on imported fuel from the Middle East a "thing of the past".

In his annual State of the Union address to Congress, Mr Bush set out plans to pour billions of dollars into researching new technology for producing alternatives fuels such as ethanol through the "Advanced Energy Initiative" which, he hopes, will cut oil imports from Arab countries by 75 per cent over the next 20 years.

Mr Bush was speaking after a disastrous 12 months in which his poll ratings have slumped amid growing public concern over his Administration's handling of Iraq, the economy and Hurricane Katrina. The modest list of measures offered last night reinforced the impression of a humbled, even scaled-down, presidency.

Although the President struck an upbeat note by talking about the emergence of a "hopeful society", he also acknowledged the sense of anxiety many Americans feel in a fast-changing world.

He issued a staunch defence of his security and foreign policies, including bitterly-contested wire taps of US citizens which, he emphasised, were part of a commitment from global "leadership" to the historic abolition of tyranny.

The President referred to the terrorist attacks across the world such as those on the UK last year, saying: "When they murder children at a school in Beslan - or blow up commuters in London or behead a bound captive - the terrorists hope these horrors will break our will, allowing the violent to inherit the Earth. But they have miscalculated: We love our freedom, and we will fight to keep it."

He gave warning against giving in to America's isolationist and protectionist tendencies. "In a time of testing, we cannot find security by abandoning our commitments and retreating within our borders. There is no honour in retreat...The United States will not retreat from the world, and we will never surrender to evil," he said in a speech regularly punctuated by standing ovations.

On Iraq, he expressed optimism that more troops could be brought home soon, but went on - in a message aimed clearly at Congressional critics of the war - to stress that "with so much in the balance...a sudden withdrawal of our forces from Iraq would abandon our Iraqi allies to death and prison and show a pledge from America means little." He also reiterated that Iran, a country "held hostage by a small clerical elite" must not be permitted to obtain nuclear weapons.

In the Speaker's Gallery, seated alongside First Lady Laura Bush were a number of Afghan and Iraqi democrats, as well as US military personnel including Rex - a five-year-old German shepherd former working military dog with combat experience from Iraq.

Cindy Sheehan, the mother of a slain American soldier who last summer launched a picket protest at Mr Bush's ranch in protest at the war, was also given a ticket by a Democratic congresswoman. But she was arrested outside the White House before the speech began.

It was Mr Bush's remarks on the threat of energy dependency which may cause the biggest impact in a country where around 250 million cars still clog its highways.

He said: "We have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology."

The President is a former Texas oil man himself, whose early chequered business career included a series of speculative ventures in the industry culminating in the controversial sale of his stock to Harken Energy in 1990 for just under $1 million. It might be pointed out that as a heavy drinker in his youth, he also knows a bit about addiction.

Aides say that Mr Bush was impressed by Brazil's use of cellulosic ethanol produced from sugar cane as an alternative to fossil fuels. He believes US cutting-edge technology will help make a similar scheme become commercially competitive within six years. He also set out last night measures for improving health care, as well as maths and science education.

Mr Bush last night implicitly acknowledged the bribery scandal centred around Jack Abramoff, a Republican lobbyist, saying many people were worried "about unethical conduct by public officials".

But he went on to add that many citizens were also discouraged by "activist courts that try to redefine marriage". The President praised Samuel Alito, who was yesterday confirmed as a new Supreme Court Justice by the Senate in a 58-42 vote.,

The appointment secured a key component for Mr Bush's long term legacy. Justice Alito is expected to shift the court further to the right on many social issues and, together with the appointment of Chief Justice Roberts last year, should ensure the president leaves a firm imprint on American society for decades to come.

The Democrats' official response led by Tim Kaine, the new Governor of Virginia, emphasised the Republicans' ethical scandal and the Administration's incompetence over Hurricane Katrina. "There is a better way" to govern, he said.

Times Recommends

• Should Knox’s trial even have reached the courtroom?
• 'Was it real?' The US bailout nightmare
• Iranian opposition plays the long game