In a nationally televised New Year's address, however, Lee said that Seoul will "strongly respond" to any provocative acts from Pyongyang, calling for the South Korean military to maintain a heightened vigilance against the North.
"The most important target at this moment is peace and stability on the Korean Peninsula," Lee said. "We are leaving a window of opportunity open."
"If North Korea shows a sincere attitude, a new era on the Korean Peninsula can begin," Lee said.
Lee also expressed hope that this year will mark a "turning point" in resolving the North's nuclear standoff but repeated his previous stance that the six-party talks on ending North Korea's nuclear weapons programs can resume only if Pyongyang halts all of its nuclear activities.
While North Korea publicly declared Kim Jong-un, the designated son of the late leader Kim Jong-il, to be the regime's supreme leader, outside experts remain cautious on whether he will be able to consolidate his grip on power.
Since Kim Jong-il died of a heart attack on Dec. 17, the young leader has appeared to have swiftly gained key posts of the North's military and Worker's Party.
Little is known about the North's next leader, who is believed to be in his late 20s, and the succession process has been shrouded in secrecy. Many analysts have predicted that Pyongyang may launch another provocation this year to solidify its internal political order.
"As long as the possibility of North Korea's provocation remains, we will maintain a watertight defense posture," Lee said. "If provoked, we will strongly respond."
On Sunday, North Korea issued its New Year's message urging its military and people to become "human rifles and bombs" to defend Kim Jong-un and rally behind the young leader.
Inter-Korean ties are currently at one of their lowest levels in years. In its latest hostilities against South Korea in 2010, North Korea sank a South Korean warship and attacked a border island with artillery fire, killing a total of 50 South Koreans.
Last year, diplomatic efforts to resume the six-party talks gained momentum, but the death of Kim left prospects for a resumption of the talks more uncertain. The multilateral talks, which involve the two Koreas, China, Japan, Russia and the U.S., have been dormant since late 2008.
Days before the reported Dec. 17 death of Kim, North Korea and the U.S. held talks in Beijing. Pyongyang had been poised to announce an agreement with Washington to suspend its uranium enrichment program and accept U.N. nuclear monitors in exchange for food aid.
Such moves by North Korea were preconditions set by South Korea and the U.S. for resuming the six-party talks.
On the economy, Lee set taming inflation and job creation as two of his top goals for the year.
"The government will curb inflation at an early three percent range under any circumstances," said Lee, whose single, five-year term expires in February of next year.
South Korea's consumer prices rose 4.2 percent last month, exceeding a target range set by the Bank of Korea, which forecast "substantial" downside risks for the economy this year.
The central bank has predicted that South Korea's economic growth may fall to 3.7 percent this year from an expected growth of 3.8 percent last year, hit by sluggish demand amid a global economic uncertainty sparked by Europe's debt crisis.
Lee warned that the global economic malaise would weigh on the South Korean economy this year, but he will focus on stabilizing the domestic economy, rather than growth.
"The global economy will likely be very difficult this year," Lee said. "While economic growth is important, I will focus on bringing consumer prices down and expanding welfare for low-income people."
For the first time in 20 years, South Korea will this year hold both parliamentary and presidential elections in the same year.
Lee, who is banned from running for a second term under the Constitution, said his government will "fairly manage the elections with a historical responsibility."
Last year, some of the president's senior aides and relatives were convicted for exploiting their influence for personal gain or mired into allegations of corruption.
"As I look back upon the year that has passed, I feel I must apologize to the people," Lee said. "I will reflect upon my actions and the current situation."
While Lee did not directly mention such corruption scandals involving his aides and relatives last year, the remarks were seen as an explicit acknowledgment that he will make it one of his key policies to combat corruption as he enters his final year in office, a presidential aide said.
It was also the first time that Lee expressed an apology for such scandals in his New Year's address, the aide said on the condition of anonymity.