French President Jacques Chirac will sign a youth employment law which has sparked mass protests, he has declared.
Students gathered to watch the president's address
But in an address to the nation, Mr Chirac promised to modify two of the law's most controversial clauses.
He pledged to shorten from two years to one the period in which youths under 26 could be fired - and said employers would need a reason for the dismissal.
Trade unions said Mr Chirac's plan was unacceptable, and crowds gathered in Paris booed and jeered his speech.
Student leaders and unions have vowed to press ahead with a strike called for next week.
The law, known as the CPE, makes it easier for employers to hire and fire people under the age of 26.
It seems that Mr Chirac's attempt to please everyone has ended up pleasing no-one, says the BBC's Caroline Wyatt in Paris.
It leaves his government looking weak and indecisive, exactly what his Prime Minister Dominique de Villepin had wanted to avoid, she says.
And it will upset those who want real reform to France's economy, while doing little to quell the anger on the streets, our correspondent adds.
'Time to defuse'
The president said he had decided to sign the law because it had been voted through parliament and opened new employment opportunities.
But he said he understood the anxieties expressed by many young people across France.
"It is time to defuse the situation," he said.
Mr Chirac has also told employers not to put the law into practice yet, as he wants to hold more talks with business leaders and trades unionists.
A crowd of several hundred people in central Paris greeted Mr Chirac's address with loud booing.
VIEWS ON THE STREETS
Opponents and supporters of the CPE air their views
Union leaders said they would go ahead with another one-day strike next Tuesday.
"We don't want to negotiate. We don't want it at all," Bruno Julliard, head of the largest students' union, told French TV.
"The president had the chance to give a clear answer, which he didn't do."
The opposition Socialists said Mr Chirac had failed to calm the atmosphere and there was now "much to fear".
"There will be more demonstrations," leader Francois Hollande said.
French Prime Minister Dominique de Villepin has championed the law, despite its deep unpopularity.
FRENCH STUDENT PROTESTS
2005: Conservative education minister withdraws key elements of school reform after pupils and teachers protest
1995: Protests over pension reforms push conservative PM Alain Juppe from office two years later
1994: Conservative PM Edouard Balladur abandons law cutting wages for young people in job training in face of month of protests
1986: Conservative government shelves plan to implement university reform in face of mass protest
May 1968: Uprisings help undermine legitimacy of President Charles de Gaulle, who stands down following year
His government insists it will help tackle high levels of youth unemployment - currently running at more than 20%.
Youth unemployment and lack of opportunities were widely blamed for last year's riots in France poorest communities.
The government says the new law will help jobless youngsters in those areas, where youth unemployment can reach 40%.
But students say the law will erode stability in the jobs market.
Mr de Villepin had urged the president to back the law, apparently making it clear he felt so strongly that he could resign if the president backed down.
Mr Chirac is loath to lose Mr de Villepin as prime minister - he remains his political son and chosen heir for the presidency, our correspondent says.
Students, unions and left-wing political parties have staged a three-week campaign of strikes and demonstrations against the CPE, with some protests turning violent.