In a statement issued through its embassy in Washington, Yemen's government welcomed the U.S. decision and vowed to "work with the United States to take all necessary steps to ensure the safe return of its detainees and will continue working towards their gradual rehabilitation and integration back into society."
Obama said he will insist on judicial review from every Guantanamo detainee, and when it's appropriate, terrorists will be transferred stateside to stand trial in courts and "our military justice system."
"Given my administration's relentless pursuit of al Qaeda's leadership, there is no justification beyond politics for Congress to prevent us from closing a facility that should never have been opened," the president said.
There are 86 inmates at Guantanamo who have been cleared for transfer, 56 of them from Yemen.
While Obama worked to close Guantanamo early in his first term, Congress enacted significant restrictions on the transfer of detainees from the prison that made its closure impractical.
This year, the State Department reassigned the special envoy who had been tasked in 2009 with closing the facility and lowered the post's profile by assigning the job to the department's legal adviser's office.
The problem has been exacerbated by the fact more than half the facility's inmates engaging in various forms of hunger strike, more than 20 of them being force-fed.
New dangers have emerged
Obama made the case that the al Qaeda terror network in the Afghan and Pakistan region has been weakened but that new dangers have emerged as the U.S. winds down operations in Afghanistan after more than a decade of war triggered by the 9/11 attacks.
Threats that have emerged come from al Qaeda affiliates, localized extremist groups and homegrown terrorists, like the two men suspected of attacking the Boston Marathon last month.
The administration has been considering shifting control of lethal drone operations from the CIA to the military. One senior administration official said the "military is the appropriate agency to use force," not to rule out the range of options needed to deal with threats.
By law, the military is not able to act in the covert way the CIA can in this particular arena and must answer to Congress.
In his confirmation hearing for CIA director, John Brennan expressed a desire to move the agency away from paramilitary operations and back to traditional areas of espionage.
"The CIA should not be doing traditional military activities and operations," he said.
Obama rejected the idea of a global war on terror in favor of a more focused approach that will engage on specific networks of extremists who threaten the United States.
The administration plans to avoid operations that will cause civilian casualties and wants to work with partners in its operations.
Use of force will be part of a larger strategy to deal with instability and hostility. Obama discussed strategies for promoting democratic governance and economic development and fostering U.S. engagement around the world.
The president also raised the unpopular topic of foreign aid, presenting it not as charity but as a means of national security. It amounts to less than 1% of the national a budget but is integral to fighting terrorism, he said.
"For what we spent in a month in Iraq at the height of the war, we could be training security forces in Libya, maintaining peace agreements between Israel and its neighbors, feeding the hungry in Yemen, building schools in Pakistan, and creating reservoirs of goodwill that marginalize extremists," he said.
Republican: Obama speech 'a victory' for terrorists
Several Republicans panned Obama's speech.
Rep. Michael McCaul, chairman of the House Homeland Security Committee, criticized the idea of closing the Guantanamo Bay prison and said, "The president's policies signal a retreat from the threat of al Qaeda."
"The Obama administration's return to a pre-9/11 counterterrorism mindset puts American lives at risk," the Texas Republican said. "This war will continue whether the president acknowledges it or not."
Sen. Saxby Chambliss of Georgia said that announcing plans to close the facility "sends the message to ... detainees that if they harass the dedicated military personnel there enough, we will give in and send them home, even to Yemen."
"The president's speech today will be viewed by terrorists as a victory," Chambliss said.