In a speech to Algerian students Wednesday, the French leader also said that the sharing of civilian nuclear technology should form the foundation of a ''pact of trust that the West must reach with the Muslim world.''
France generates most of its electricity with nuclear power and wants to export the technology and its expertise. It signed a nuclear cooperation accord with Algeria on Tuesday, the second day of Sarkozy's visit, that would allow for transfer of technology and the eventual construction of a nuclear reactor for civilian use in this North African nation.
In his address to students at a university in Constantine, Sarkozy suggested that establishing a Palestinian state would help the fight against terrorism.
''It is from a feeling of injustice that the terrorists derive their greatest strengths,'' he said. ''Depriving the Palestinians of a nation state is an injustice that France will not accept.''
The president also said France considered failure to recognize ''that Israel has a right to live in security'' as another injustice.
Paris will host a conference Dec. 17 to raise money for the Palestinians, a follow-up to the Mideast summit in Annapolis, Maryland. The summit's agreement skirted the main differences that have led to the collapse of previous peace efforts: the borders of a Palestinian state, the status of disputed Jerusalem and the rights of Palestinian refugees and their descendants.
Throughout three-day the trip that began Monday, Sarkozy has taken steps toward ending decades of rancor with Algeria, once the crown jewel among French colonies, with comments to denounce colonization.
''The colonial system was unjust by nature, and it could only be experienced as an enterprise of subjugation and exploitation,'' he said Wednesday.
''I have not come to deny the past,'' he said. ''But I have come to say that the future is more important.''
Several times in the speech, Sarkozy stressed France's commitment to fighting racism, anti-Semitism
and discrimination against Muslims.
Tensions increased between France and Algeria last week when Algeria's veterans affairs minister, Mohamed Cherif Abbas, said Sarkozy won the presidency because he was backed by a ''Jewish lobby.''
Several days later Algerian President Abdelaziz Bouteflika called Sarkozy, who had a Jewish grandfather, to distance himself from the minister's comments.