WASHINGTON, June 9 (Matt Spetalnick/Reuters) - US President Barack Obama urged Israel on Wednesday to help ease restrictions on humanitarian aid and civilian goods for Gaza after a deadly flotilla raid, saying the situation in the blockaded coastal strip was unsustainable.

Hosting Palestinian President Mahmoud Abbas at the White House, Obama also pledged $400 million in U.S. assistance for the West Bank and Gaza, and sought to prevent heightened Middle East tensions from derailing U.S.-brokered peace efforts.

Obama called for a new conceptual framework to the Israeli embargo on Gaza and said his administration was pressing the Jewish state to work with all parties to find a solution.

But he stopped short of joining a broader international outcry against US ally Israel over last week's raid on a Gaza-bound aid convoy and did not back Abbas's demand for a lifting of the Gaza blockade.

Obama reiterated that the flotilla incident was a tragedy and that it would be important to get all the facts.

What we also know is that the situation in Gaza is unsustainable, he told reporters with Abbas at his side.

Abbas's visit came amid an international backlash against Israel after its forces boarded a Turkish aid ship headed for the Hamas-ruled Gaza Strip on May 31. Nine pro-Palestinian activists were killed.

Israel imposed the blockade after Hamas Islamists seized control of Gaza from Abbas's Fatah-dominated Palestinian Authority in 2007. Abbas now governs only in the West Bank.

Israeli Prime Minister Benjamin Netanyahu, who was due to see Obama on June 1 but scrapped his trip because of the flotilla crisis, is working to reschedule a White House meeting by the end of the month, U.S. and Israeli officials said. The two leaders will seek to mend fences after recent strains.

NO TOUGHER LINE

The Palestinian leader urged Obama to take a tougher line with Israel. We see the need to lift the Israeli siege of the Palestinian people, Abbas said.

Obama voiced sympathy for the plight of the 1.5 million mostly poor Palestinians packed into the coastal strip but insisted any solution must meet Israel's security needs. Israel says its 4-year-old Gaza blockade is intended to stop weapons smuggling to Hamas. Palestinians call it collective punishment.

There should be ways of focusing narrowly on arms shipments, rather than focusing in a blanket way on stopping everything and then, in a piecemeal way, allowing things into Gaza, Obama insisted, saying his administration had begun some hard-headed discussions with Israel on the issue.

Seeking to boost Abbas's standing with his people, Obama announced a $400 million aid package to the Palestinians.

Any fresh US funds to Gaza would come with strings attached to keep it out of the hands of Hamas, which is on the US list of terrorist groups.

The White House also staged Abbas's visit so that reporters could see the two leaders together in the Oval Office. By contrast, press coverage was barred during Netanyahu's tense visit in November, which Israeli media interpreted as a snub.

Obama reiterated his support for a credible investigation of the flotilla incident. But he steered clear of international calls for an independent probe. Israel insists on conducting its own inquiry, with a role for foreign experts or observers.

The Obama administration still hopes to push Israel and the Palestinians to direct negotiations. But Obama's Middle East diplomacy, central to his outreach to the Muslim world, has been complicated by the flotilla incident.

Obama said in order to create a climate for a breakthrough toward a two-state solution, Israel must curb settlement activity -- a source of recent discord with Washington -- and the Palestinians must prevent anti-Israel incitement.

Obama has little room to maneuver. With US congressional elections looming in November, he must be mindful that support for Israel is strong among US lawmakers and voters.

Abbas arrived from Turkey, a US ally that has condemned Israel's action and curtailed ties with it. Abbas has called the raid a massacre. Israel said its commandos defended themselves when attacked during the boarding. (Additional reporting by Mohammed Assadi in Jerusalem, Editing by Doina Chiacu)