The South Korean leader has urged North Korea to abandon its nuclear programme in return for economic assistance from Seoul.
Some protesters showed their displeasure at North Korea's nuclear programme
Speaking during Korean Independence Day celebrations, Roh Moo-hyun urged his neighbour to make good use of six-way talks in the Chinese capital at the end of this month.
"When the North gives up its nuclear programmes, the South is willing to take the lead in helping develop its economy," Mr Roh said in his televised address from the Independence Hall of Korea south of Seoul.
But he did not specify what kind of aid he was proposing.
Thousands of South Koreans rallied in the capital - expressing both solidarity with and opposition to North Korea's stance.
And in Pyongyang, a delegation of about 340 South Korean civic leaders joined commemorations of the 58th year since Japan's occupation of the Korean peninsula ended.
Other protesters demanded the US end its "aggression"
The nuclear crisis erupted in October 2002 when the United States accused Pyongyang of trying to enrich uranium in defiance of a 1994 accord.
It suspended shipments of fuel oil and the construction of two long-delayed light-water reactors.
Since then, North Korea has ejected UN nuclear inspectors and claimed to have restarted operations at the Yongbyon nuclear plant.
Both Koreas, the US, Japan, China, and Russia are set to meet in Beijing on 27-29 August.
The North Korean nuclear issue "has to be settled peacefully at all costs", urged Mr Roh.
Passions erupt in Seoul
In Seoul, students were among about 10,000 people rallying in support of demands that the US sign a non-aggression treaty with North Korea - a demand the US has rejected, though it has offered assurances that it will not attack.
They carried placards condemning the US for "threatening war" on the North.
Meanwhile, some 5,000 right-wing demonstrators rallied a few blocks away, burning North Korean flags and effigies of its leader Kim Jong-il, and smashing models of missiles.
In North Korea, about 340 South Korean delegates took part in Pyongyang's independence celebrations.
North and South Koreans met for celebrations in Pyongyang
It is the third year such delegations have been allowed.
Wreaths were laid at the tombs of Soviet soldiers who died trying to free Korea from brutal Japanese rule in 1945 - and at a statue of the revered former President Kim Il-sung.
Aid for good behaviour?
Some estimates suggest that more than one million North Koreans have died from starvation since the mid-1990s.
South Korea has rarely explicitly linked aid provision with political steps in Pyongyang.
Former President Kim Dae-jung's "sunshine policy" of engagement discouraged the removal of aid as punishment for perceived North Korean misdeeds.
However, Pyongyang's policy of alternating threats with friendly overtures has been interpreted by some analysts as a way of trying to extract economic aid.