Appearing before cheering supporters who packed the Damascus Opera House, it was his first big speech since June and first public appearance of any kind since a television interview in November, Reuters reported.
Assad called for national mobilization in a "war to defend the nation," describing the rebels as terrorists and foreign agents with whom it was impossible to negotiate.
Branding his opponents as "enemies of God and puppets of the West," he said Syria wanted to negotiate with “the master, not the servants," the BBC reported.
"There are those who seek to partition Syria and weaken it,” Assad said. “But Syria is stronger ... and will remain sovereign ... and this is what upsets the West."
The president said the rebel movement was not a revolution.
"That would need thinkers and be based on an idea," he said. "It needs leadership - who is the leader of this revolution?"
Assad also thanked Russia, China and Iran for supporting Syria in the face of hostility from the U.S., Britain and France, The Guardian reported.
Assad’s initiative, including a reconciliation conference that would exclude "those who have betrayed Syria," contained no concessions and appeared to recycle proposals that opponents have rejected since the uprising began nearly two years ago.
The opposition Syrian National Coalition said the speech was an attempt to block an international consensus, backed by Western and Arab powers, that Assad must go.
“It is an excellent initiative that is only missing one crucial thing: His resignation,” said Kamal Labwani, an exiled member of the coalition.
“All what he is proposing will happen automatically, but only after he steps down,” Lawani told The Associated Press from Sweden.
George Sabra, vice president of the National Coalition, told Reuters the peace plan Assad put at the heart of his speech did "not even deserve to be called an initiative. We should see it rather as a declaration that he will continue his war against the Syrian people."
British Foreign Secretary William Hague said "empty promises of reform fool no one." In a Twitter message, he added: "Death, violence and oppression engulfing Syria are of his own making."
EU foreign affairs chief Catherine Ashton said Brussels would "look carefully if there is anything new in the speech, but we maintain our position that Assad has to step aside and allow for a political transition."
Assad spoke confidently for about an hour before a crowd of cheering loyalists, who occasionally interrupted him to shout and applaud, at one point raising their fists and chanting: "With blood and soul we sacrifice for you, Oh Bashar!"
At the end of the speech, supporters rushed to the stage, mobbing him and shouting: "God, Syria and Bashar is enough!" as a smiling Assad waved and was escorted from the hall.
"We are now in a state of war in every sense of the word," Assad said in the speech, broadcast on Syrian state television. "This war targets Syria using a handful of Syrians and many foreigners. Thus, this is a war to defend the nation."
The United Nations says 60,000 people have been killed in the civil war in Syria. Fighting has arrived at the edge of Damascus, and the past six months have seen rebels advance dramatically. They now control much of the north and east of the country, a crescent of suburbs on the outskirts of the capital and the main border crossings with Turkey.
But Assad's forces are still firmly in control of most of the densely populated southwest, the main north-south highway and the Mediterranean coast. The army also holds military bases throughout the country from which its helicopters and jets can strike rebel-held areas with impunity, making it impossible for the insurgents to consolidate their grip on territory they hold.
Assad's speech seemed ostensibly aimed at showing Syrians, and perhaps diplomats, that he is open to change.
But the plan could hardly have been better designed to ensure its rejection by the opposition. Among its proposals: rebels would first be expected to halt their operations before the army would cease fire, a certain non-starter. This would be followed by a national conference to draft a new constitution and then election of a new government.
The opposition has consistently said it will not cease fire until the army does, and will not negotiate any transitional government unless Assad is excluded.
Assad also repeatedly emphasized rebel links to al Qaeda and Islamist radicals. Washington, which supports the opposition, has also labeled one of the main rebel groups terrorists and says it is linked to the network founded by Osama bin Laden.
Diplomacy has been largely irrelevant so far in the conflict, with the United States, European powers, Arab states and Turkey all demanding Assad leave power, while Russia and Iran refuse to exclude him from talks on a future government.
U.N. mediator Lakhdar Brahimi has been trying to bridge the gap, meeting senior U.S. and Russian officials to discuss a peace proposal that does not explicitly mention Assad's fate.
National Coalition spokesman Walid Bunni told Reuters that Assad's speech was timed to try and prevent a breakthrough from those talks by taking a position intended to thwart compromise:
"The talk by Brahimi and others that there could be a type of political solution being worked out has prompted him to come out and tell the others 'I won't accept a solution'," Bunni said, adding that Assad feared any deal would mean his downfall.
"He is sensing the danger that any initiative would entail."
Giving the speech in the opera house, in a part of central Damascus that has been hit by rebel attacks, could itself be seen as a show of strength for a leader whose public appearances have grown rarer as the rebellion has gathered force.
He spoke before a giant flag, constructed of portraits of what state television described as victims of the conflict.
"We meet today, and suffering is overwhelming the land of Syria. There is no place for joy while security and stability are absent on the streets of our country," he said.
"But from the womb of pain, hope must be born."