The British Prime Minister was giving a news conference after having talks with the Hungarian Prime Minister Viktor Orban.
Mr Orban appeared to rebuke Mr Cameron when he told him not to treat Hungarians as 'migrants' who should be discriminated against.
Their comments came after Mr Cameron warned Germany that support for the EU among the British public is on the wane.
The PM told the news conference: "Let me be clear, I support the free movement of people. What matters is that we deal with the scale and pressures and sometimes that movement can create those.
"Britain's welfare system has provided an additional draw in terms of movement of people and it is that that my proposal of the four-year wait for welfare benefits is designed to address.
"We have had good discussions, we have a limited time between now and the February European Council, but I'm confident if we work hard with goodwill on all sides, we should try for an agreement at that council."
Speaking after their hour long meeting in Budapest, Mr Orbàn said his citizens were not "parasites" but should "get respect and should not suffer discrimination."
He said: "For us it is very important that we are not considered as migrants. Words matter here ...
"We would like to make it quite clear that we are not migrants into the UK. But we are the citizens of a state that belongs to the European Union who can take jobs anywhere freely within the European Union."
But he added that he was willing to reach a compromise.
He added: "I'm sure that we will be able to find a solution which is going to be suitable for the Hungarian employees, for the Hungarian citizens, and that is also going to serve the requirements the government of David Cameron set for itself."
The Prime Minister is attempting to reform Britain's relationship with Brussels ahead of an in-out referendum.
In earlier remarks in an article for German newspaper Bild, Mr Cameron said backing among the UK population for the EU has "declined over many years", and argued the changes he is seeking will help solve problems affecting Germany and other European countries as well.
Mr Cameron held talks with German Chancellor Angela Merkel about progress on a deal after dinner at a conference of her Christian Social Union party in Bavaria.
Earlier this week, Mr Cameron confirmed ministers will be allowed to campaign for a no vote in the referendum, even if he declares his renegotiation effort a success.
Downing Street hopes a deal can be secured at a summit of EU leaders next month, paving the way for a referendum later in the year.
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