Salih, at a press conference in Cairo with Arab League chief Amr Musa, said, however, his country would accept less sweeping changes if fellow Arab states opposed its proposal.
"Yemen presented a proposal for an Arab union," Salih said after talks with the head of the Cairo-based organisation.
He said this should be inspired by the European Union and other regional blocs to "develop common Arab action with a view to giving international and regional weight to Arab countries."
"But if our (Arab) brothers have reservations or consider that proclaiming a union would be premature, we are prepared to present other serious proposals or study the proposals of every other party."
Salih arrived in Cairo on Monday for talks with Egyptian and Arab League officials before this year's Arab Summit due to be held in Tunis at the end of March.
"It is time to develop the Arab League and give it a push forward, because the situation is serious"
head, Arab League
He and Egypt's President Husni Mubarak reviewed "the general Arab situation", underlined their "joint determination to work together to encourage Arab action" and "agreed to strengthen cooperation, Egyptian Foreign Minister Ahmad Mahir said.
They also discussed ideas put forward by Egypt and Yemen, aimed at modernising the Arab League.
For his part, Musa said "it is time to develop the Arab League and give it a push forward, because the situation is serious" in the Arab world and the league should be "strong or not exist at all".
Tunisia still has not decided whether to host the summit, he said, adding it would otherwise be held in Cairo.