"Our Muslim compatriots have nothing to do with the crazy motivations of a terrorist," Sarkozy said in a brief televised speech roughly two hours after Merah's death.
But he pledged a crackdown on anyone tempted to become involved with violent Islamist groups, including monitoring activity on the internet.
Anyone systematically visiting websites "justifying terrorism" or "preaching hatred and violence" will be punished, he said.
Anyone travelling abroad to take part in such activity will also face criminal proceedings in France.
And measures will be taken to stop the spread of violent ideologies in French prisons.
Merah travelled to Pakistan and Afghanistan on two occasions and fought alongside the Taliban in both countries.
Sarkozy's Socialist rival in the presidential election made a brief statement before Sarkozy.
"The [French] republic is always the strongest," he said. "That's the lesson we must draw from the events we have just been through."
Police shot Merah as he tried to escape throught the window, police told the media Thursday.
"He was dead by the time he hit the ground," a source told the AFP wire agency.
An inquiry has been launched into the circumstances of Merah's death, Sarkozy said.