Abassi Madani, chief of the banned Islamic Salvation Front (FIS), said these conditions were part of an initiative floated to military and government figures to end the civil war that had ravaged Algeria for more than a decade.
"When we call for an end to the bloodshed there must be a general presidential pardon for all prisoners and freeing those missing... and lifting the state of emergency," he said.
Madani, speaking to Aljazeera on Wednesday, did not elaborate.
The Islamist leader, now in his 70s, was arrested shortly before army-backed authorities cancelled parliamentary elections which the FIS was poised to win in 1992.
The move triggered almost a decade of civil strife that has claimed an estimated 100,000-150,000 lives.
The Algerian government blames Islamist groups for the often indiscriminate violence, but many have accused the government itself of taking part in the carnage.
"When we call for an end to the bloodshed there must be a general presidential pardon for all prisoners and freeing those missing... and lifting the state of emergency"
Islamic Salvation Front leader
In the past two years violence had continued at a sporadic, reduced level.
Madani, who served 12 years for threatening state security, was freed in July. He accepted his release on the condition that he refrained from political activity.
He told the satellite channel that certain officials had seen the proposal. "Not everyone in power is against changing the situation," he said.
Algeria is due to hold presidential elections in 2004, which will be seen abroad as a gauge of political and economic stability in the oil-rich country.