In the interview to New York Times, Karzai said that he wanted the US forces to stop arresting suspected Taliban and their sympathisers, asserting that these arrests and past mistreatment were discouraging Taliban from coming forward to lay down their arms.
Karzai said the real terrorist threat lay in sanctuaries of the Taliban and Al Qaeda in Pakistan.
"The war against terrorism is not in Afghan villages, the war against terrorism is elsewhere, and that's where the war should go," he told the Times, referring to the Taliban and Qaeda sanctuaries in Pakistan.
"There is no way but to close the sanctuaries," he said.
"Pakistan will have no peace, Pakistan's progress will suffer, so will Afghanistan's peace and progress, so will the world's. If you want to live, and live in peace, and work for prosperity, that has to happen. The sanctuaries must go," he said.
He blamed mistreatment by some warlords and the US forces for driving the Taliban out of the country, to Pakistan, where they regrouped and took up weapons again.
Karzai, however, expressed optimism over Afghanistan's path, and said that the change of government in Pakistan could bring progress against terrorism.
"We began on a very good note," he said of relations with the new government, led by the party of former Prime Minister Benazir Bhutto, who was killed in December last year.
"The current government has the full backing of the military and intelligence circles in Pakistan and with the good intentions that they have, things will improve," Karzai said.
Karzai said he supported the Pakistani government's efforts to make peace with Taliban there who were not a threat to the rest of the world.
"But if the deal is with those that are hardcore terrorists, Al Qaeda, and are bent upon sooner or later again causing damage to Pakistan, and to Afghanistan and to the rest of the world, that's wrong and we should definitely not do it," he said.
The president said that civilian casualties, which have dropped substantially since last year, needed to cease completely. For nearly two years the US-led coalition has refused to recognise the need to create a trained police force, he said, leading to a critical lack of law and order.
The comments came as Karzai is starting to point toward re-election next year, after six years in office, and the Times said it may be part of a political calculus to appear more assertive in his dealings with foreign powers as opponents line up to challenge him.
Karzai called for greater respect of Afghanistan's fierce independence and for more attention to be paid to building up the country than doing things for it.
"For the success of the world in Afghanistan, it would be better to recognise this inherent character in Afghanistan and work with it and support it," he was quoted as saying.
"Eventually, if the world is to succeed in Afghanistan, it will be by building the Afghan state, not by keeping it weak," he added.
