The international community considers all settlements in the occupied West Bank and east Jerusalem, which Israel seized in the 1967 Arab-Israeli war, to be illegal.
The Palestinians have said they will not meet Netanyahu until Israel halts all settlement activity.
|Netanyahu has been adamant that "natural growth" of settlements will continue [EPA]
The presence of hundreds of thousands of Israelis in more than 100 settlements across the territory continues to be a major obstacle to peace efforts.
Sarkozy, keen to act as a Middle East peace-broker, has previously welcomed as "an important step forward" Netanyahu's endorsement of a Palestinian state, despite a set of conditions that were rejected outright by Palestinian leaders.
These include Netanyahu's call for a "demilitarised Palestinian state" with no army and no control of its airspace.
Sarkozy's comments come amid reports of a fallout between Israel and the United States over the settlements.
Netanyahu had been due to meet George Mitchell, the US Middle East envoy, in the French capital but the talks were called off amid reports, denied by Israeli officials, of a clash over Israel's refusal to stop building more settlements.
The meeting between Netanyahu and Mitchell had been due to take place in Paris on Thursday and was set to focus on bridging differences over settlement expansion, Israeli officials said.
Instead, Ehud Barak, the defence minister, will now go to Washington on Monday to meet Mitchell.
As Netanyahu was leaving Rome for Paris on Wednesday, Israeli officials said Israel had initiated both the deferral of the Netanyahu-Mitchell meeting and the idea to send Barak to Washington.
The US and Israel were seeking to achieve "understandings" on settlement building in occupied land, the officials said.
"The goal we have is to try to reach understandings with the [Obama] administration on settlements, and move on," one official told the AFP news agency, on condition of anonymity.