But his olive branch was instantly dismissed by Beijing.
Unveiling proposals on Thursday for constitutional reforms he plans to introduce in 2008, Chen ruled out any change to the status of Taiwan.
"I am fully aware that consensus has yet to be reached on issues related to national sovereignty, territory and the subject of reunification and independence," the 53-year-old said.
"Such issues will not be included in the scope of constitutional reforms," he told a crowd of 200,000 people who had gathered in heavy rain on the capital's presidential square for his inauguration ceremony.
Chen further conceded that "any form of future relationship between the People's Republic of China and the Republic of China (Taiwan) should not be ruled out," including reunification.
The Taiwan leader also renewed his vows at the inauguration four years ago that he would not seek independence during his tenure.
But an unimpressed Beijing reacted by branding Chen's policies the "greatest threat to peace and stability" in the region.
China regards Taiwan as part of its territory - to be re-unified by force if necessary.
"Chen Shui-bian's provocative pro-independence activities form the biggest current threat to peace and stability in the Taiwan Straits," the Chinese Foreign Ministry said.
Beijing has repeatedly accused the independence-minded leader of planning to break away from mainland China, and in the run up to Thursday's inauguration said unambiguously it would crush any moves towards secession.