The prospects for a two-state solution to the Israeli-Palestinian conflict are waning because of growing Israeli settlement of the West Bank, Barack Obama has said in his final press conference as US president.

Obama said on Wednesday that his administration did not block a United Nations resolution on Israeli settlement activity last month because it felt a two-state solution was the only option for peace.

"The goal of the resolution was to simply say that the ... growth of the settlements is creating a reality on the ground that increasingly will make a two-state solution impossible," he said.

"It was important for us to send a signal, a wake-up call that this moment may be passing."

Obama defended his administration's rapprochement with Cuba and his move to end the "wet foot, dry foot" policy that lets any Cuban who makes it to US soil stay and become a legal resident.

Ending the visa-free path was the latest development in a warming of relations that has included the easing of the US economic embargo and the restoration of commercial flights between the two countries.

"That was a carry-over of an old way of thinking that didn't make sense in this day and age, particularly as we're opening up travel between the two countries," Obama said of the "wet foot, dry foot" policy.

Obama also defended his decision to cut nearly three decades off convicted leaker Chelsea Manning's prison term on Wednesday, arguing that the former army intelligence analyst had served a "tough prison sentence" already.

He said he granted clemency to Manning because she had gone to trial, taken responsibility for her crime and received a sentence that was harsher than other leakers had received.

He emphasised that he had merely commuted her sentence, not granted a pardon, which would have symbolically forgiven her for the crime.

READ MORE: Reducing Manning's sentence 'outrageous', say Republicans

"I feel very comfortable that justice has been served," Obama said.

Manning was convicted in 2013 of violating the Espionage Act and other crimes for leaking more than 700,000 classified documents to WikiLeaks, the whistle-blower website, while working as an intelligence analyst in Baghdad.

Formerly known as Bradley Manning, she declared as transgender after being sentenced to 35 years in prison.

She had served more than six years before Obama commuted her sentence on Tuesday, with a release date set for May.

Russia policy

In Wednesday's speech, Obama also called on President-elect Donald Trump to continue trying to persuade Russia to reduce its nuclear stockpiles.

He said that he tried to negotiate further reducing nuclear arsenals with Russian President Vladimir Putin, but he said Russia's leader was reluctant.

Obama also called on the next administration to lead by example and work to prevent big countries from "bullying" smaller nations.

He said that implementing sanctions on Russia following its incursion of Ukraine was a "good example of the vital role" America must play in advocating for and enforcing basic rights around the world.

On a personal note, Obama said that after leaving office on Friday he wanted to take time to process the "amazing experience" his family has gone through.

He said he wanted to write and to spend time with his daughters, Malia and Sasha.

Obama and his family will head for vacation in Palm Springs, California, after Trump is sworn in as president on Friday.

The White House has not said how long they will stay in California before they return to a rented home in Washington DC.