"We are seeking to improve relations with all countries in the region. The Prime Minister has already given the guideline. The goal of prosperity and development will not succeed without regional peace," Zardari said in his address to a joint session of both houses of parliament.
Zardari, who became the first President to address a joint session of parliament for a sixth time, said Pakistan wants to improve relations with India.
His speech came four days after newly elected Prime Minister Nawaz Sharif vowed to "progressively pursue" normalcy in ties with India while actively seeking solutions to outstanding issues, including Kashmir.
"Steps have been taken to liberalise trade with India. We want a peaceful settlement of the water issue," he said.
"We seek a peaceful resolution of the Jammu and Kashmir issue, in accordance with the wishes of the Kashmiri people. We do not want an arms race in the region," he told members of the Senate and the National Assembly, including Sharif.
Asserting that Pakistan will not allow its soil to be used for terrorism directed against any other country, Zardari called for a two-pronged approach combining dialogue and the use of force to tackle militancy and terrorism.
"The government will not allow the use of our soil for terrorist activities against any other country. We will also not allow anyone to violate our sovereignty. The sovereignty of Pakistan must be protected at all costs," he said as lawmakers, including Sharif, thumped their desks.
Describing militancy, extremism and terrorism as the "greatest threat" to Pakistan's national security, he said: "The nation is united against militancy. We need strong leadership to overcome the threat.
"We are ready to make peace with those willing to give up violence. But we should also be ready to use force against those who challenge the writ of the state".
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