(Reuters) – The diplomatic crisis over Israel’s raid on a Gaza-bound flotilla added to the pressures facing President Barack Obama, who is already grappling with a catastrophic oil spill and high unemployment at home.

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Here are some questions and answers about the challenges confronting Obama 16 months into his administration.

WHAT IS OBAMA’S MOST PRESSING PROBLEM?

Obama has said his highest priority is containing the Gulf of Mexico oil spill, rated the biggest in U.S. history.

Several efforts to plug the BP oil leak have failed. The Gulf region’s ecology and large seafood industry are at risk.

Obama, who has visited the Gulf Coast twice, is fighting accusations he reacted too slowly. He has sought to assert leadership on the calamity, telling the beleaguered Gulf Coast residents “the buck stops with me.”

HOW DOES THE GAZA RAID COMPLICATE OBAMA’S MIDEAST AGENDA?

The White House has reacted cautiously to the storming of a Turkish aid ship bound for Gaza, which has left nine dead and sparked an international outcry.

Close U.S. ally Israel has found itself increasingly isolated and the incident dealt a fresh setback to the latest effort to restart Israel-Palestinian peace talks.

Adding to the difficulties are recent strains in U.S.-Israeli relations.

Obama, who made Mideast diplomacy a major priority, had succeeded in reviving Israeli-Palestinian peace negotiations through U.S.-mediated indirect talks. But there has been little or no progress and prospects look even more bleak after the flotilla incident.

The incident might also complicate Obama’s effort to secure new United Nations Security Council sanctions against Iran over its nuclear program.

HOW BIG A CONCERN IS THE U.S. ECONOMY?

The U.S. economy has shown signs of improvement in recent months in the aftermath of the 2008-2009 financial crisis.

But Americans are still struggling and the U.S. unemployment rate is 9.9 percent, near a 27-year high, posing political problems for Obama and his Democratic allies ahead of the November congressional elections.

An upcoming government report on the jobs market is expected to show a surge in hiring for the U.S. Census but private economists expect only a small drop in the unemployment rate to 9.8 percent.

Meanwhile, the administration is concerned about the potential fallout for the United States of the European debt crisis, which could dampen world growth and depress U.S. exports. In a worst-case scenario, it could result in a broader financial contagion.

HOW DOES THE U.S. DEFICIT COMPLICATE THE PICTURE?

The debt woes of countries like Greece, Spain and Portugal have put a spotlight on the U.S. budget deficit, which is projected to hit $1.6 trillion this year.

Republicans have attacked Obama over the red ink, labeling him a big spender. The White House counters that the deficits are a legacy of fiscal mismanagement under the Bush administration.

Some Democratic lawmakers have become more reticent about backing additional social safety-net spending amid indications U.S. voters are increasingly concerned about the deficit.

White House officials are debating how far to go in emphasizing a message of budgetary restraint when the lackluster pace of economic growth remains a pressing concern.

WHAT ABOUT OTHER ISSUES ON OBAMA’S DOMESTIC AGENDA?

Obama’s signed a landmark overhaul of the U.S. healthcare system into law in March, notching up a win on his top domestic priority.

But it is unclear how much the healthcare victory will help Democrats among voters in November. Republicans continue to attack the measure as an attempted government takeover of a key sector of the economy.

Obama’s plan to overhaul U.S. financial regulation looks likely to pass in the coming weeks, perhaps by July 4. A House-Senate panel is hammering out a final bill after separate measures have passed both houses of Congress.

WHAT ABOUT THE STANDOFF BETWEEN THE TWO KOREAS?

Mounting antagonism between North and South Korea threatens to complicate U.S. diplomatic efforts toward Pyongyang’s patron, China, which has responded cautiously to Seoul’s charge that the North torpedoed one of its warships. Washington is looking for ways to head off any possibility of a military confrontation.

WHERE DO THINGS STAND WITH THE WARS?

AFGHANISTAN – Obama ordered 30,000 more U.S. troops to Afghanistan in December in an effort to break the momentum of the Taliban. After making little progress, U.S. forces are preparing for a major offensive in the Taliban’s spiritual heartland, Kandahar. Obama vows the United States will not abandon Afghanistan, but he is sticking to a promise to begin withdrawing troops from July 2011.

IRAQ – Obama has declared the Iraq war will end for the United States by the end of 2011, when remaining U.S. troops will withdraw. Three months after a March 7 parliamentary election, Iraq still does not have a government, raising fears that the long delay could exacerbate sectarian tensions. But Washington says it is sticking to its withdrawal timetable.

(Compiled by Caren Bohan and Ross Colvin; editing by Cynthia Osterman)