Mr. Karzai spoke during a meeting of diplomats in Turkey, ahead of a major donor conference later this week in London.
The Afghan leader said reconciliation is needed, especially with Taliban members who are not affiliated with al-Qaida or other terrorist networks. He also stressed that economic development will play a crucial role in reconciliation efforts.
Turkey hosted the talks with officials from Afghanistan, Pakistan, Iran, China and Western nations. The countries issued a statement supporting Mr. Karzai's proposal, saying it was "Afghan-led and Afghan-driven."
Also Tuesday, some aid agencies demanded a radical change in the way funds and supplies are distributed in Afghanistan.
The agencies, the British and Irish Agencies Afghanistan Group, also known as BAAG, said in a statement that lives are being lost because of "mismanaged or ineffective projects".
The group's director Abdul Basir said aid money should be funneled into Afghanistan through civilian agencies instead of the U.S. military.
Also, the International Committee of the Red Cross said Tuesday forces in the region must do more to distinguish civilians from actual combatants.
Meanwhile, Afghan President Hamid Karzai has responded to claims by a top U.S. official that he is "not an adequate strategic partner" and that the upcoming troop surge would make the country too dependent on American military forces.
The New York Times published the warning from a diplomatic cable originally sent by U.S. ambassador to Afghanistan Karl Eikenberry to President Barack Obama.
Mr. Karzai said Afghanistan is a partner with the U.S. as long as the U.S. respects Afghanistan's sovereignty and decision making. But he also warned Afghanistan would not be, in his words, a "submissive entity to a foreign power."
Some information for this report was provided by Reuters and AFP.