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.
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.