"Overall, in a very difficult circumstance, we've seen progress from the prime minister. We are grateful to him," Obama said at the White House along side Tsvangirai after their private meeting.
Tsvangirai is an unusual coalition of power with Mugabe, who has been accused of stealing an election from Tsvangirai and orchestrating widespread violence. After years of dogged opposition that involved suffering death threats, arrests and beatings, Tsvangirai is now trying to change Zimbabwe's government from the inside.
Obama made clear which leader he deemed worthy of praise. Mugabe is accused of ruining a once prosperous nation's economy and trampling its citizens' democratic rights.
"The president, President Mugabe - I think I've made my views clear - has not acted all the time in the best interest of the Zimbabwean people and has been resistant to the kinds of democratic changes that need to take place," Obama said.
Obama said the U.S. is trying to encourage human rights and the rule of law in Zimbabwe along with other basics of society: working schools, health care and an agricultural system that can help the country feed its people.
Tsvangirai praised the West for its monetary support and told Obama that the country is committed to meeting benchmarks of progress.
Hours before the White House meeting, Zimbabwe's political and business leaders made an impassioned appeal for an end to restrictions on aid and for more international investment.
"Sanctions at this junction in our history are meaningless," Deputy Prime Minister Arthur Mutambara told an economic conference in Cape Town, South Africa. "Help us help ourselves by removing all those sanctions so Zimbabwe can have a fresh start. "
Tsvangiria arrived in Washington this week as part of a three-week tour of Western countries, trying to persuade governments to offer some aid despite worries about Mugabe.
The administration says it is listening but still has reservations.
After a meeting between Tsvangirai and Secretary of State Hillary Rodham Clinton, State Department spokesman Ian Kelly said the administration was looking for "ways to ease the suffering of the Zimbabwean people without bolstering those forces that are clinging to corruption and repression."
He said the United States would consider development aid if certain reform benchmarks are met. Tsvangirai says that Zimbabwe, where the standard of living has plunged under drastic financial mismanagement, needs aid now.
He warned in a speech Wednesday that overhauling the system could falter without aid.
In the speech, he also argued that Zimbabwe has made progress since his Movement for Democratic Change joined the coalition government. He acknowledged the challenge of working with a man responsible for much of his suffering and that of his country.
"Well, I was almost killed. I know that," he said. But he asserted that Mugabe was allowing reform.
"We are moving into a new phase, and that's what needs to be rewarded rather than punished," he said.
Meanwhile, Mugabe has been portraying Tsvangirai as his personal emissary to the United States.
John Makumbe, a political scientist at the University of Zimbabwe, said Tsvangirai's Oval Office meeting with Obama was "a slap in the face" for Mugabe. Mugabe, frozen out by the White House for more than a decade, has not commented on the visit.
Mugabe, as the first leader of independent Zimbabwe, visited President Jimmy Carter in 1980, the year of independence, and President Ronald Reagan in 1983. As Reagan's vice president, George H.W. Bush visited Zimbabwe.