Afghanistan remains one of the world's poorest countries and the biggest opium supplier.
"What we have achieved is very promising, but let me be frank and say that the reconstruction has only begun," Karzai told a gathering of some 50 potential donor countries in Berlin.
A US-led military operation of 13,500 troops has limited but not eliminated Taliban and al-Qaida supporters in Afghanistan, and the drugs trade and civil commanders have reemerged as threats to stability.
The United States said on Wednesday that the first of 2000 Marine reinforcements had arrived to intensify the hunt for fugitives and boost security ahead of elections, which have been delayed until September partly because of security concerns.
Karzai says Afghanistan needs $27.5 billion over seven years to build a state capable of supporting itself, although he was not expecting this sum at the two-day Berlin conference.
Finance Minister Ashraf Ghani Ahmadzai said Afghanistan expected to receive more than $4 billion this year and stressed the aid would help cut the massive cost of the West's military operations in Afghanistan, estimated at $10 billion to $12 billion per year.
"What we have achieved is very promising, but let me be frank and say that the reconstruction has only begun"
"We are not asking for charity, we are asking for investment," he told a news conference.
"When we are asking for assistance it is to actually save you money, not to make further claims on your constrained budgets."
US aid largest
Officials said Washington would provide the lion's share of aid for the financial year to 20 March 2005, some $2.2 billion. The European Commission and member states were together expected to pledge about 700 million euros ($857.3 million).
Afghanistan remains world's
biggest opium producer
Japan pledged $400 million for the next two years and the Asian Development Bank said it would provide $1 billion - mostly concessional loans and grants - from 2005 to 2008.
Western countries have been desperate to stop Afghanistan reverting to the status of a "failed state" after the overthrow of the Taliban in the wake of the 11 September 2001 attacks on the United States.
But aid agencies and think-tanks say the West's commitment to Afghanistan has been lacklustre, and much of the aid it might have won has been diverted to post-war Iraq - which receives 10 times as much despite having roughly the same population.
Opium production increasing
US Secretary of State Colin Powell, in a speech to the conference, expressed the hope of many in the West that Afghanistan not be allowed to harbour groups like al-Qaida.
"Never again will tyrants and terrorists rule Afghanistan and never again will Afghanistan become a seedbed of instability."
Powell vowed that 'tyrants' and
'terrorists' will not rule Afghanistan
However, opium production in Afghanistan, almost eradicated under the Taliban in its last year in power, has since taken off and is reckoned to be worth about half the country's officially estimated gross domestic product of nearly $4 billion.
The country is believed to supply three-quarters of the world's opium. "Nobody wants to be called a drug dealer, especially not a whole nation," Karzai said.
While the NATO-led International Security Assistance Force has succeeded in re-establishing security in the capital Kabul and surrounding areas and has a small presence in northern Kunduz, most of the country is in the hands of regional commanders and their private armies.