Speaking to reporters after talks with Swiss counterpart Didier Burkhalter, Steinmeier said he could not elaborate on efforts to free the men, given the "highly sensitive stage of the ongoing negotiations".
Neutral Switzerland is currently at the helm of the Organisation for Security and Cooperation in Europe (OSCE), which sent the observers to Ukraine.
"Our goal is the unconditional release of the hostages in Slavyansk," said Burkhalter.
Eight OSCE observers, four of whom are Germans, were captured last Friday in the flashpoint town of Slavyansk in mainly Russian-speaking eastern Ukraine.
Berlin has been pushing Russian President Vladimir Putin to persuade the pro-Moscow rebels to free the observers.
One of the hostages, a Swede who was said to suffer from diabetes, was freed late Sunday, but the Germans, a Pole, a Dane and a Czech are still being held.
The rebels also captured four Ukrainian OSCE representatives, but they have not been seen in public since.
In Berlin, German Defence Minister Ursula von der Leyen in a statement said based on information from European counterparts the hostages were as of early today "doing well under the circumstances".
Steinmeier called the Ukraine crisis a "huge challenge for all concerned", saying clashes today showed the violence in the embattled country was far from over.
Burkhalter said there were plans to launch a new drive to resolve the crisis and that high-level contacts were under way, but did not elaborate.
Later today ahead of talks with EU foreign affairs chief Catherine Ashton in Berlin, Steinmeier urged "all the parties involved in the conflict in Ukraine not to destroy the chance of a return to the Geneva agreement with their actions".
He was referring to a pact last month between Ukraine, Russia, the European Union and the United States to ease tensions.
"It is absolutely vital that we do not see continuing violence, it's absolutely vital that we see occupations of buildings reduced," Ashton said.
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