French President Jacques Chirac has urged Algerians not to forget the brutal war of independence which split the two nations.
Mr Chirac got a standing ovation
He spoke of shattered dreams and families torn apart before saying that France and Algeria could now build stronger ties.
Mr Chirac received a standing ovation from members of the Algerian parliament for his speech.
He is making the first state visit by a French president to Algeria since the former colony won independence in 1962.
Mr Chirac was a second lieutenant in the French army during the independence campaign and fought against Algerians.
He called the 1954-1962 war a time of "destruction and suffering".
Let's look the past in the face - recognise its wounds and its tragic dimensions
"The past is complex and still painful, and we must not forget it or renounce it," he told the parliament.
The conflict had "countless victims, tore families apart, and shattered destinies and dreams".
"Let's look the past in the face - recognise its wounds and its tragic dimensions," he said.
Mr Chirac also looked to the future, saying France wanted to help Algeria develop and support its economic reform efforts.
Travelling with him is a delegation of leading business people, including the heads of corporate giants TotalFinaElf, Alstom and Airbus, as well as French cultural figures.
Mr Chirac also referred to Algeria's 11-year conflict with Islamist guerrillas. He urged the country to rely on "dialogue and responsibility" as it tries to end the insurgency.
"The best response against fanaticism and extremism is political openness, economic reform and social justice," he said.
The French president received a rapturous welcome from hundreds of thousands of Algerians at the start of his visit.
Crowds cheered him as he drove from the airport in an open-top limousine with Algerian President Abdelaziz Bouteflika.
Many people threw confetti at Mr Chirac, while others chanted "Visas, visas" in reference to hopes that more Algerians would be permitted to work in France.
France and Algeria signed a declaration for increased co-operation on Sunday and Mr Chirac returned the silver seal of the last ruler of Algiers, taken by French forces in 1830.