Hilbert's program aimed at "solving" the foundational issues (form Cantor and Frege, to Russell and Brouwer) proving the consistency of the "main" mathematical theories, like arithmetic, real analysis and set theory.
In order to prove that, the program developed concepts and tools of metamathematics, i.e. the discipline based on mathematical logic able to study the mathematical theories as mathematical objcets themselves.
This metamathematical activity has to be "performed" into a "secure" mathematical theory: the "elementary" part of arithmetic.
This theory must supply the tools sufficient for the consistency proof of other theories.
Of course, this "gound-level" mathematical theory must be itself consistent.
Unfortunately, Gödel's Second Incompleteness Theorem shows that a formalized arithmetical theory having "enough resources" (this concept is made precise by the theorem) to be suitable for the metamatheatical aims is not able to prove its own consistency, and neither the consistency of "more powerful" theories like real analysis and set theory.
Regarding Gödel's comment after Th.XI :
I wish to note expressily that Theorem XI do not contradict Hilbert's formalistic viewpoint [emphasis added]. For this viewpoint presupposes only the existence of a consistency proof in which nothing but finitary means of proof is used, and it is conceivable that there exist finitary proofs that cannot be expressed in the formalism of $P$.
And this was exactly what happened with Gentzen's consistency proof.
Some comments are useful here :
Hilbert's concept of finitary is not precise: but it's hard to escape from the expectation that the "finitary part" of arithmetic must include $\mathsf{PA}$; thus, G's Th applies.
Gentzen's proof is hardly "finitistic".
the original aim of Hilbert's program was to "convince" intuitionstic mathematicians that axiomatized set theory was "secure"; if so, any "ostensive" consistency proof based on a model of, e.g. arithmetic, built up into set theory was clearly useless.
Added
Regarding your added question, you can see (in general) :
In particular, you can see the overview of Presburger's arithmetic for a (very weak) first-order theory of the natural numbers with addition, without multiplication.
This theory is complete and decidable; thus, it "eludes" G's First Th.
Unfortunately, without multiplication it has not enough resources to implement the arithmetization of syntax; thus, it is unable to "perform" the basic metamathematical tasks and so it cannot prove relevant metamathemetical properties, like consistency of a theory (and neither of itself).
Gentzen's consistency proof "eludes" in some way G's Second Th :
Gentzen showed that the consistency of first-order arithmetic is provable, over the base theory of primitive recursive arithmetic with the additional principle of quantifier-free transfinite induction up to the ordinal $ε_0$.
Gentzen's proof also highlights one commonly missed aspect of Gödel's second incompleteness theorem. It is sometimes claimed that the consistency of a theory can only be proved in a stronger theory. The theory obtained by adding quantifier-free transfinite induction to primitive recursive arithmetic proves the consistency of first-order arithmetic but is not stronger than first-order arithmetic.
For example, it does not prove ordinary mathematical induction for all formulae, while first-order arithmetic does (it has this as an axiom schema). The resulting theory is not weaker than first-order arithmetic either, since it can prove a number-theoretical fact - the consistency of first-order arithmetic - that first-order arithmetic cannot. The two theories are simply incomparable.
This is your problem. The the proof of consistency of your theory must be from a stronger theory, but, if you are wondering whether a theory is consistent, shouldn't you be worried about using a stronger theory?
– James Feb 26 '15 at 15:14