The US warning was immediately backed by France, Britain and Arab nations which have driven demands for a no-fly zone and other measures to save civilians in Libya, now enshrined in a UN resolution mandating action.
The US president made dramatic and forceful on-camera demands of Qadhafi, saying the world could not stand by because, if left unchecked, the Arab strongman would commit atrocities in which thousands would die.
But Obama left unclear the exact role that Washington would play in military action against Libya, beyond enabling its European and Arab partners to "effectively" mount a no-fly zone and a mission to protect civilians.
He made clear, however, that there would be no US ground troops deployed to Libya, and repeatedly stressed that the United States, which is still stung by the price of its 2003 invasion of Iraq, would not take unilateral action.
"The United States is prepared to act as part of an international coalition. American leadership is essential, but that does not mean acting alone.
"It means shaping the conditions for the international community to act together."
"Our goal is focused, our cause is just, and our coalition is strong."
Obama spoke as opposition rebels in the stronghold of Benghazi and other cities awaited Qadhafi's response, after it said earlier it would observe a ceasefire.
Obama said that if Qadhafi failed to honor the UN Security Council resolution passed Thursday, demanding a complete ceasefire among other requirements, he would face "consequences."
"These terms are not subject to negotiation. The resolution will be enforced through military action."
"Left unchecked, we have every reason to believe that Qadhafi would commit atrocities against his people," Obama said. "Many thousands could die. A humanitarian crisis would ensue."
Libyan Deputy Foreign Minister Khaled Kaaim early Saturday accused rebels of breaching Tripoli's self-declared ceasefire. He earlier said the Libyan military will not attack Benghazi, which has a one-million population.
US Ambassador to the United Nations Susan Rice, in an interview with CNN, later said that Qadhafi was in violation of the resolution.
France's Ambassador to the UN, Gerard Araud, has said he expects military intervention in Libya within hours of a summit in Paris later Saturday on taking UN-sanctioned action.
Obama also laid down new and specific, conditions for Qadhafi, saying he must immediately halt his advance on the key rebel town of Benghazi and pull back from three other rebel contested cities, or face military action.
"That means all attacks against civilians must stop," Obama said.
"Qadhafi must stop his troops from advancing on Benghazi, pull them back from Ajdabiya, Misrata and Zawiyah and establish water, electricity and gas supplies to all areas," Obama said.
In a statement issued by the French presidency soon after Obama spoke, France, Britain and Arab nations joined Washington in calling on Qadhafi to "immediately" end attacks against his people or face military force.
The countries said "a ceasefire must be put in place immediately" adding that attacks against civilians must end.
Mirroring Obama's warning, the statement warned "Qadhafi must end his troops' advance on Benghazi and withdraw from Ajdabiya, Misrata and Zawiyah.... That is not negotiable."
Obama said he would also send Secretary of State Hillary Clinton back to Europe to attend a major summit in Paris on Libya on Saturday, which includes the leaders of France, Britain and Germany as well as Arab allies.
He also held consultations at the White House with key members of Congress, outlining his plan of action.
"Qadhafi has lost legitimacy and it is only a matter of time before he is out of power," said Democratic Senate Majority leader Harry Reid.
"Together with our allies, we should work to ensure that Qadhafi's transition out of power is swift, and that the people of Libya do not suffer any more than they already have."
Another of Obama's Democratic allies, Senator John Kerry added: "President Obama's stern ultimatum to Qadhafi is the right message. There must be a full cessation of hostilities immediately."