Holbrooke said a new approach was needed to address security concerns.
"I have never seen anything remotely resembling the mess we have inherited," Holbrooke, said.
"What is required in my view is new ideas, better co-ordination within the US government, better co-ordination with our Nato allies and other concerned countries and the time to get it right."
Engaging the Taliban
Floating his idea on the international stage for the first time, Karzai had earlier sought support for his approach to engage the Taliban in the political process.
"We will invite all those Taliban who are not part of al-Qaeda, who are not part of terrorist networks, who want to return to their country ... to come back to their country," Karzai said, calling on the fighters to lay down their arms.
"I would request the international community to back us in this, fully, and be of one view on this, not of divided views," he said.
"There is no way that we can succeed in the way we want to, in the right time, without some form of reconciliation."
The Afghan president called on world leaders attending the conference, including Joe Biden, the US vice-president; Nicholas Sarkozy, the French president; Angela Merkel, the German chancellor, and other Nato members, to support his proposal.
But Al Jazeera's Mark Seddon, reporting from Munich, said hearing from the different speakers, it would appear that the aim of agreeing on a common strategy seemed to be some way off.
Al Jazeera's Hamish MacDonald, reporting from the Afghan capital, Kabul, noted the Taliban had previously dismissed similar comments that Karzai had made at home, saying it was not interested in reconciliation until foreign forces left Afghanistan.
|Taliban fighters have in the past dismissed
calls for reconciliation with Kabul [AFP]
Karzai said his call had to be part of a larger peacemaking effort for Afghanistan and that foreign forces in the country should do more to prevent civilian casualties which have caused widespread anger among Afghans.
His comments come in the wake of a string of attacks across the country by fighters suspected of being loyal to the movement, with two US soldiers, an Afghan policeman and a translator being killed on Sunday when a roadside bomb they were trying to disarm in the southern province of Helmand exploded.
Karzai, who is due to take part in presidential elections in August, has seen his local and international support damaged in the past months by resurgent Taliban attacks, allegations of government corruption and an increase in Afghanistan's opium production.
His call for reconciliation with the Taliban could be part of a strategy to shore up his flagging presidency and convince international partners that he was the best person to lead Afghanistan, our correspondent said.