Palin said she and McCain were against withdrawing from Iraq on a timeline.
"Your plan is a white flag of surrender in Iraq and that is not what our troops need to hear," Palin said. "We cannot afford to lose there, or we will be no better off in the war in Afghanistan, either. We have got to win in Iraq."
Palin accused Obama of voting against funding for U.S. troops fighting in Iraq and Afghanistan and chastised Biden for defending the move, "especially with your son in the National Guard."
Both Biden and Palin have sons in the military on their way to serve in Iraq.
Biden argued another Senate vote meant "John McCain voted against funding for the troops" as well, and said the Republican presidential candidate had been "dead wrong on the fundamental issues relating to the conduct of the war."
"John McCain has been dead wrong," he said. "Barack Obama has been right. There are the facts."
Though the candidates disagreed on the whether the United States should sit down with the leaders of rogue nations, such Iranian President Mahmoud Ahmadinejad, both candidates trumpeted ongoing American support for the state of Israel.
Palin said she supported a two-state solution to the Israel-Palestine conflict and the Bush administration's efforts to negotiate a settlement.
Biden touted his own pro-Israel credentials and said he and Obama would push for proactive diplomatic engagement in the Middle East.
"Gwen, no one in the United States Senate has been a better friend to Israel than Joe Biden," he said. "I would have never, ever joined this ticket were I not absolutely sure Barack Obama shared my passion. ... We will change this policy with thoughtful, real, live diplomacy that understands that you must back Israel in letting them negotiate, support their negotiation, and stand with them, not insist on policies like this administration has."
The debate kicked off on the issue of economics, one day after the Senate passed a controversial Wall Street bailout bill and on the eve of an expected re-vote on the bill in the House of Representatives. Biden and McCain each placed blame for the ongoing economic crisis on the current administration and pushed the plans of their running mates.
"The economic policies of the last eight years have been the worst economic policies we've ever had," said Sen. Biden, D-Del., in St. Louis during the first moments of the only vice-presidential debate of the campaign season.
He touted Sen. Barack Obama's, D-Ill., plan to increase regulation and cut CEO golden parachutes.
Alaska Gov. Palin, speaking with a seemingly newfound confidence following some slips in recent network interviews, trumpeted the Republican plan of Sen. John McCain, R-Ariz., "who pushed so hard for reform."
"Go to a kids' soccer game on Saturday and turn to any parent and ask how they are feeling about the economy, and I betcha you're gonna hear some fear in that parent's voice -- fear regarding the investments few of us have in the stock market," she said.
Palin said McCain had sounded the alarm years ago on failed mortgage giants Fannie Mae and Freddie Mac, but other lawmakers had ignored his warnings. Biden reminded Palin that McCain's first words in the face of the current credit crisis were, "The fundamentals of the economy are strong."
Biden lampooned the McCain-Palin tax plan as a measure that would help only the wealtheist corporations and individuals and pledged not to increase taxes on middle-class families who earn less than $200,000.
"Where I came from, it's called fairness," Biden said. "The middle class is struggling. Under McCain, 100,000 households get not a single break in taxes. When you [the middle class] do well, America does well. This is not punitive. McCain wants to add tax breaks for the corporations and wealthy. We have a different value set. The middle class deserves the tax breaks."
Palin said the health of the economy was contingent on allowing the private sector to grow on its own, free of a heavy tax burden.
"You said paying taxes is patriotic. You're not always the solution, too often you are the problem. Get out of the way and let the private sector and families prosper," said Palin.
With just two minutes to answer each of moderator Gwen Ifill's questions, the candidates covered a lot of ground quickly. Moving from the economy, Biden and Palin discussed climate change, same-sex marriage and foreign policy.
Palin, who has built much of her candidacy on her energy policy credentials, called for further drilling and use of domestic oil. She declined to place the blame for global warming squarely on human beings.
"I'm not one to attribute every activity of man to change in the climate," Palin said, arguing for more drilling of fossil fuels in the United States. "People are so hungry for those domestic sources of energy to be tapped into. It is safe to drill and we need to do more of that."
Biden sharply disagreed, saying he believed climate change was "man-made" and the nation needed to actively seek alternative energy sources.
"I think it's man-made," Biden said. "I think it's clearly man-made. If you don't understand the problem, then you don't understand the solution. His only idea is drill, drill, drill -- and in the meantime, we are going to be in real trouble."
On one issue, however, the candidates agreed. Both said they supported full civil rights for same-sex couples, but opposed redefining marriage to include them.
Both candidates, known for their gaffes and verbosity, are being closely watched tonight. Observers believe both vice presidential contenders need to watch what they say.
"They've both got to worry more about themselves than they do each other," Geraldine Ferraro, a Democrat who was the only previous female major party vice presidential pick, recently told ABCNews.com.
The stakes are particularly high for Republican nominee, Alaska Gov. Sarah Palin, who after slipping up on key policy points in a series of recent interviews may need to prove to some voters that she knows the issues and can confidently talk about them.
After her selection initially appeared to bolster the Republican presidential ticket, Palin now appears to be something of a drag.
Thirty-two percent of registered voters in a just-released ABC News/Washington Post poll say her selection makes them less likely to support Sen. John McCain, R-Ariz., for president, up from 19 percent last month.
"She is coming into this debate in an environment where her numbers have been slipping, where she's been hurting the McCain ticket," said ABC News chief Washington correspondent George Stephanopoulos. "She's going to have to turn it around.
"If she has another moment like she had in her interviews with Charlie Gibson and her interviews with Katie Couric, where she draws a blank or makes a significant mistake," Stephanopoulos added, "that could ... be nearly fatal to the McCain campaign."