The Philippine government plans to hold talks next week with the Moro Islamic Liberation Front (MILF), which has been waging a bloody rebellion since 1978 on the southern island of Mindanao.
"I am very pleased that President Arroyo has made such good progress on dealing with counterterrorism issues," Obama said.
"She has initiated a peace process in Mindanao that we think has the potential to bring peace and stability to a part of the Philippines that has been wracked by unrest for too long," he said.
Arroyo thanked the United States for its years of assistance to help the Philippines fight Muslim militants.
She also hailed Obama for reaching out to the Islamic world.
"We welcome President Obama's reaching out to the Muslim world. And also we are very pleased about the importance that he affords to engagement with our part of the world," she said.
Obama spent part of his childhood in Indonesia, another nation his administration has identified for stronger ties.
The Philippines has been among the most vocal Southeast Asian nations in pressuring the military regime Myanmar, earlier known as Burma, where a court on Friday is set to hand a verdict to democracy icon Aung San Suu Kyi.
"Internationally, we stand foursquare behind the United States on the position it has taken with regard to Burma and with regard to North Korea's nuclear adventurism," Arroyo said.
She also said that she and Obama "connected very well also on our position with regard to Burma and Aung San Suu Kyi."
Arroyo earlier met with House Speaker Nancy Pelosi and was also due to meet business leaders.
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