McCain told the Latino officials the proposal failed because Americans were not confident Congress would protect U.S. borders before dealing with the question of illegal immigration.
"GOD'S CHILDREN"
"I want to assure you we will address this issue in a humane and compassionate fashion," he said, calling illegal immigrants "God's children."
Hispanics are the fastest growing minority group in the United States and account for about 9 percent of the national electorate. They could be a critical swing voting bloc in November battleground states like Florida and in the U.S. Southwest.
In 2004, President George W. Bush won about 40 percent of the Hispanic vote - a Republican record - in defeating Democrat John Kerry. But opinion polls show Republicans have been hurt with Hispanics by the debate over immigration reform.
Obama has had his own problem with Hispanics, who heavily supported his primary rival Sen. Hillary Clinton of New York.
Polls show Obama has rebounded among Hispanics since clinching the Democratic nomination. Many polls show McCain falling short of Bush's 40 percent of Hispanic support.
Obama, who will be the first black nominee of a major U.S. political party, stressed the groundbreaking nature of his candidacy to the Hispanic group.
"I'm hoping that somewhere out in this audience sits the person who will become the first Latino nominee of a major party," he said.
McCain was interrupted four times during his speech and subsequent questions by protesters who challenged his staunch backing of the Iraq war. Officials of the Hispanic group apologized and said they were not members.
Obama, who has called for a withdrawal of U.S. combat troops from Iraq within 16 months of taking office, said Hispanics had borne a heavy burden during the war.
Both candidates stressed economic and education proposals they said would help Hispanics. McCain touted his plans to cut corporate tax rates and make Bush's income tax cuts permanent, along with his support for free trade proposals.
"It is a terrible mistake to raise taxes during an economic downturn," McCain said. "I reject the false virtues of economic isolationism. Any confident, competent government should embrace competition - it makes us stronger."
Both McCain and Obama will speak next month to another influential Hispanic group, the National Council of La Raza, at its convention in San Diego.
