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By Steve Holland WASHINGTON (Reuters) - President Barack Obama said on Friday that the United States and its allies are making slow but steady progress in the fight against Islamic State militants in Iraq and Syria, and he pledged new aid to Jordan to grapple with Syrian refugees. Obama and Jordan's King Abdullah made a show of solidarity against Islamic State, holding Oval Office talks that covered the gamut from Iran's nuclear program to tensions between Israel and the Palestinians. "We recognize that it's a long-term and extremely complex challenge, but it's one that we feel optimistic we'll be able to succeed at," Obama said of the Islamic State battle, with Abdullah seated at his side. Beyond the military challenge, the two leaders discussed some of Abdullah's ideas about organizing within Islam in a way to allow peaceful Muslims to over time "isolate and ultimately eradicate this strain" of the religion that has swept the region, Obama said. Abdullah has absorbed into his country some 1.5 million refugees from Syria's civil war. To continue to deal with the challenge, Obama pledged $1 billion in aid and a new loan guarantee to help Jordan. Abdullah, in an interview on CBS' "This Morning" that aired Friday, described the fight against Islamic State as akin to a third world war. "We have to stand up and say, 'This is the line that is drawn in the sand,'" he said. "It's clearly a fight between good and evil." The White House talks also covered international efforts to persuade Iran to give up its nuclear program, which Tehran denies is aimed at developing an atomic weapon. A deal eluded negotiators late last month, but the effort continues. Obama said it was unclear whether Tehran would seize its chance for a deal in nuclear talks with western powers. "I briefed His Majesty about our negotiations with Iran, and indicated to him that we would prefer no deal to a bad deal, but that we continue to hold out the possibility that we can eliminate the risk of Iran obtaining a nuclear weapon," Obama told reporters. (Reporting by Steve Holland and Jeff Mason; Editing by Doina Chiacu and Lisa Shumaker)