President Barack Obama acknowledged Tuesday that he had “made a mistake” in trying to exempt some candidates for positions in his administration from strict ethics standards and accepted the withdrawal of two top nominees, including former Senate Majority Leader Tom Daschle, the first major setback of his young presidency.

Obama officials had sought a seamless transition, nominating most of his Cabinet at record pace and taking office ready to implement a raft of new policies. His reversal Tuesday suggested that speed may have come at a cost, and that Obama, despite the overwhelming popularity he enjoyed upon taking office and the massive challenges facing the nation, will not be spared from the same kind of scrutiny his predecessors have faced.

In jettisoning one of his closest and earliest political allies, Obama appeared eager to make a course correction after days of criticism that his administration was failing to abide by its own stated ethical standards and questions about his ability to bring change to the capital.

“Did I screw up in this situation? Absolutely. I’m willing to take my lumps,” Obama said in an interview with NBC’s Brian Williams, one of five interviews he conducted Tuesday. In interview after interview with network anchors, Obama said there are “not two sets of rules” for people — and said that average taxpayers deserve to have public officials who pay their taxes on time.

Daschle’s exit from consideration to lead the Department of Health and Human Services after a firestorm over his failure to pay $146,000 in taxes on time came as a shock to the president’s supporters in Washington: just a day earlier, Obama pledged his support for the former Democratic Senate leader who was expected to be confirmed. Hours earlier, Obama’s nominee for the newly created position of Chief Performance Officer, Nancy Killefer, stepped aside because of a tax problem.

His withdrawal also jolted the administration’s confidence in its own decision making, serving as a rebuke to Obama officials who had privately and publicly brushed aside the idea that personal tax issues would reach a boiling point. Senior officials had insisted that the public was too concerned with the ongoing economic collapse to fixate on the foibles of the men and women being marshaled to try and set the nation back on course.

Perhaps most significantly, the move threatened Obama’s plans to overhaul the health care system, a central policy initiative and one so important that Obama had given Daschle a perch both at the Department of Health and Human Services and within the White House. Daschle withdrew from both posts Tuesday, and advisers said they did not yet know whether the next nominee would serve in dual roles, a measure of the disarray the controversy had caused.

Daschle disclosed his withdrawal in a joint statement with Obama, acknowledging that questions about his tax lapses had become “a distraction.” “I will not be the architect of America’s health system reform, but I remain one of its most fervent supporters,” he said.

Obama, in that statement, described Daschle’s tax problems as a “mistake” that he did not excuse. But the administration did not fully explain the sudden decision to cut Daschle loose — including what, exactly, Obama regarded as the mistake — and the decision came only after media scrutiny and threats from some Republicans that he faced a difficult confirmation process.

Daschle’s exit came just hours after Nancy Killefer announced her withdrawal as the country’s performance czar amid questions about a $967 tax lien that had been placed on her Washington, D.C., home in 2005 after she failed to pay unemployment compensation taxes on household help.

The administration had initially turned a deaf ear to criticism of Daschle after the disclosure Friday that he had failed to pay taxes on a car and driver that had been made available for his use by a private equity firm. As recently as Monday, it still appeared that he would be confirmed by the Senate, where he still enjoyed the near-unanimous loyalty of his former Democratic colleagues.

Key lawmakers were also caught off-guard by the reversal. Sen. Max Baucus, D-Mont., chairman of the Finance Committee, who offered his firm support to Daschle after a 75-minute meeting Monday, said he was told just 15 minutes before the news broke. “The tone was almost collegial, it was not acrimonious,” Baucus said of the committee meeting, during which senators spent an hour reviewing the report on Daschle’s finances and then met with him behind closed doors. “Based on that meeting, I’m a little surprised by Senator Daschle’s decision,” Baucus said.

Daschle informed Obama of his decision in a phone call Tuesday morning, White House officials said.

Before the news broke, a growing number of Senate Republicans began speaking out against Daschle’s nomination. After holding back criticism for almost four days, some Republicans broke their silence after learning that the Killefer was withdrawing her nomination for what appeared to be a much smaller tax dispute.

“He didn’t really have a choice,” Sen. John Cornyn, R-Texas, said, after calling for Daschle to step aside earlier in the day.

Cornyn, chairman of the GOP campaign committee, said the Daschle controversy had become “Geithner on steroids,” referring to the $43,000 in back taxes the Treasury secretary paid before his confirmation vote.

The ordeal also raised new questions about how thoroughly Obama transition officials had vetted their cabinet nominees.

Officials said Tuesday that myriad tax questions had been posed to Daschle, Killefer and Treasury Secretary Timothy Geithner, who was confirmed despite his own disclosure that he had failed to pay all of his taxes on time. But the problems were largely dismissed as less important than the qualifications of the nominees for the massive tasks they were expected to confront once in office, the officials said.

On his fifteenth day in office, President Obama undertook a media blitz to convince Americans that his stimulus package deserves their support.

“We have to act. We have to act now,” the president told CBS News’ Katie Couric.

“Now that doesn’t mean that the package can’t improved and that’s what I said to the leadership last night,” he continued. “Let’s improve it. Let’s make this a package that is big enough for the moment.”

The president also faced down fallout over the withdrawal of two of his choices for key government positions, including Health and Human Services pick Tom Daschle, for tax-related reasons.

It’s almost as though last November’s election never happened. John McCain and Barack Obama were back on national TV this morning opposing each other on how to run America.

Obama in an open necked checked shirt talking to NBC, McCain more buttoned up live by satellite from Washington into CBS.

For all the talk of partisanship McCain has emerged as a surprisingly harsh critic of Obama’s $800bn plus economic stimulus package, now being argued over in Congress.

It’s the first big political battle of the Obama Presidency. Obama is desperate to show that it’s a new era in politics, and he’s reaching out to Republicans with compliments and invitations.

He’s also pointed out that the Republican Party was comprehensively bested in the 2008 election, putting it rather bluntly “I won so I will prevail” on the economy.

With their habitual ponderous statesmanship, leading Republicans, including McCain, have acknowledged this argument, insisting that they want the stimulus to go through.

Some even claim that their ideas are closer to Obama’s original proposals than the version of the stimulus which emerged from the House of Representatives.

But as McCain made clear they have a long list of changes to make before they consider backing the President: “there’s too much spending, too much unnecessary spending, not the right kid of tax cuts and no endgame”.

The positive effect of all this is that the US, unlike say Britain, is having a very vigorous debate in real time about the boost the economy needs.

But there are downsides too. Obama won the election on the economy but straight off, his mandate to act is being challenged by Republican politicians who seem to be more vociferous than their Democrat rivals who should be championing the President.

As a result, confidence in the Administration is undermined precisely at a time when restoring confidence in financial markets is the top priority. There is a danger that extended debate can start to look like fiddling while Rome burns.

The stimulus is not the only delicate economic policy facing Obama. He has to move soon to regulate the financial sector and there’s also a general expectation that the government will have to find yet more money to bail out the highly unpopular banking sector.

For all his relaxed manner – Obama’s most chilling words on TV were on the banks. Describing “the massive hangover from a binge of risk-taking” which the US is now suffering, the Presidents prognosis was grim: “Some banks won’t make it”, he predicted.

The Senate has confirmed Eric Holder Jr. as the next Attorney General on a vote of 75 to 21, with Republicans citing their opposition to his decision-making while he was the Justice Department’s No. 2 during the Clinton administration. (See Related Article)

The Judiciary Committee, which moved his nomination to the floor last week on a vote of 17-to-2, held hearings during the ranking Republican, Senator Arlen Specter of Pennsylvania, and others on his side of the aisle, listed the pardon of fugitive financier Marc Rich, whose former wife was a high-roller donor for Bill Clinton, as well as the clemency granted to several members of a radical Puerto Rican group. Mr. Holder told the panel that he regretted his actions in the Rich case.

In addition, several of the Republicans today reiterated their concerns about Mr. Holder’s views on gun control. Although Mr. Holder had told committee members that he would abide by the Supreme Court’s decision in the case District of Columbia v. Heller, Republicans pressed him because he had joined others in filing a friend-of-the-court brief in favor of the restrictions that were later overturned by the court.

Judiciary Committee Chairman Patrick Leahy, Democrat of Vermont, while saying the confirmation made him extremely happy, also noted the historic nature of the situation. Mr. Holder will become the first African-American attorney general of the United States. Senator Leahy also pointed out that Mr. Holder had received more “ayes” than the last three attorneys general had during their confirmations.

First lady Michelle Obama accompanied Secretary of Education Arne Duncan to the Department of Education today on what she said would be the first of many visits to government agencies.

“I am going to be visiting agencies throughout this administration to do just something simple, and that’s to say thank you; thank you before we even begin the work, because so many of you have been here struggling and pushing for decades,” the first lady said.

“I am a product of your work,” Michelle Obama told the department’s employees. “I wouldn’t be here if it weren’t for the public schools that nurtured me and helped me along. And I am committed, as well as my husband, to ensuring that more kids like us and kids around this country, regardless of their race, their income, their status” get an outstanding education.

The first lady highlighted the many educational initiatives the Obama administration is seeking to implement. They include increasing federal funding of grants and modernizing schools.