Appearing before cheering supporters at the Damascus Opera House, it was his first such speech since June and first public appearance of any kind since a television interview in November.
He called for national mobilisation in a war to defend the nation, describing rebels fighting him as terrorists and foreign agents with whom it was impossible to negotiate.
His new 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 National Coalition said the speech was an attempt to thwart an international agreement, backed by Western and Arab powers, that he must stand down.
Foreign Secretary William Hague said "empty promises of reform fool no-one". In a Twitter message, he added: "The death, violence and oppression engulfing Syria are of his own making."
EU foreign affairs chief Catherine Ashton said Brussels would look carefully to see if there was anything new in the speech, but added: "We maintain our position that Assad has to step aside and allow for a political transition."
Mr 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!"
"We are now in a state of war in every sense of the word," Mr 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 nation is for all and we all must protect it."
The United Nations says 60,000 people have been killed in the civil war in Syria. Fighting has arrived at the edge of the capital in what has become the longest and bloodiest of the conflicts to emerge from two years of revolts in Arab states.
Rebels have advanced dramatically in the last six months. They now control much of the north and east, a crescent of suburbs on the outskirts of the capital and the main border crossings with Turkey.
But the army holds military bases throughout the country from which its helicopters and jets can strike rebel-held areas with impunity.
The rebels are drawn mainly from the Sunni Muslim majority, while Mr Assad, a member of the Alawite sect related to Shi'ite Islam, is supported by some members of religious minorities who fear retribution if he falls.
He has backing from Shi'ite Iran, while most Arab and Western powers sympathise with the rebels.
Mr 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 was that rebels would first be expected to halt their operations before the army would cease fire – a certain non-starter.