Sarkozy's proposal to admit Palestine to the United Nations as an observer state, like the Vatican, is in sharp contrast with the position of the United States which said they would veto the bid by Palestinian Authority President Mahmoud Abbas for full membership.
In his speech to the UN General Assembly, Sarkozy called for "one year to reach a definitive agreement" between Israel and the Palestinians, saying the usual US-led peace process should not bypass European, Arab or other countries.
"We should not believe that one country only, be it the largest one, or that a small group of countries can solve a problem of such complexity. Too many major actors are left on the sidelines," Sarkozy said, according to a transcript, released by the Elysée.
The French President rejected the US strategy of imposing a veto to the Palestinian bid. "Let's admit the truth: who could doubt that a veto at the Security Council risks engendering a cycle of violence in the Middle East? Who could doubt it," he repeated.
"The method does not function […] Let's change the method! Let's change the spirit!" Sarkozy exclaimed.
"Must we therefore exclude an intermediate stage? Why not envisage offering Palestine the status of United Nations observer state? This would be an important step forward, and we would move at last after 60 years of immobility, of the immobility which has become the have of extremists," Sarkozy said.
Under UN rules, any bid for full membership requires a recommendation from the Security Council and then a two-thirds majority in the 193-member General Assembly.
Non-member status would require only a straight majority in the General Assembly where no veto is possible. It would also give the Palestinians access to international bodies like the World Health Organisation and perhaps the International Criminal Court.
The French leader later met with US President Barack Obama who has insisted that only negotiations between Israel and the Palestinians can forge a lasting peace.
US President Obama told Mahmoud Abbas in a meeting that UN action would not lead to a Palestinian state and that the United States would veto such a move in the Security Council, the White House said.
"Peace will not come through statements and resolutions at the UN," he said. "Ultimately, it is Israelis and Palestinians – not us – who must reach agreement on the issues that divide them: on borders and security; on refugees and Jerusalem," Obama was quoted as saying.
Obama did not comment on the French leader's proposals, but Ben Rhodes, a deputy national security advisor, said Sarkozy's suggestions were "important" and "constructive," AFP reported.
A senior European Union official quoted by AP said the proposal laid out by Sarkozy matched that of EU foreign policy Chief Catherine Ashton during a meeting with EU foreign ministers on Tuesday. The official spoke on condition of anonymity because of the sensitivity of the discussions.
But it remains unclear if all EU countries align with Sarkozy's proposal, as several East European EU members tend to align with US positions on Middle East issues.
France has a five million Muslim population and some 600.000 Jews. According to French political commentators, Sarkozy's initiative should be seen in the context of the upcoming French presidential elections in May 2012.
