Yemeni forces have killed and arrested hundreds of loyalists of Hussein al-Huthi, who led a group that wants to install Shia clerical rule and preaches violence against the United States and Israel.
Some of al-Huthi's supporters are on trial. It was not clear if they would be freed under the amnesty.
"We have declared an amnesty for the supporters of Hussein al-Huthi and his father who are in jail for the strife they caused," Saleh said in a speech carried by state television.
"We have pardoned them despite the blood that has been spilled," he added.
Al-Huthi's group is not linked to al-Qaida.
Yemen, the ancestral homeland of al-Qaida leader Osama bin Laden, joined the US-led "war on terror" after the 11 September 2001 attacks.
Yemeni forces killed al-Huthi along with 200 rebels during fierce fighting last year.
Al-Huthi was killed in Yemen
during fierce clashes last year
The government blamed his father, Shaikh Badr al-Din al-Huthi, for a new round of fighting that erupted in March and in which 170 rebels and security forces were killed.
The elder al-Huthi has agreed to stop fighting.
Saleh announced the amnesty in a speech to mark the 1962 army coup that ended Yemen's religious rule and transformed it into a republic.
Saleh said the government would compensate the family of Imam Ahmad Hamid al-Din, Yemen's last Islamic leader whose assets were seized after the coup. He did not elaborate.
Most of the imam's family live outside Yemen.