Islamist terrorism "continues to be the greatest threat to stability and security in Germany and Europe," Schäuble said in Berlin.
It is only thanks to hard work from German intelligence services and their partners in other countries that there have as yet been no serious terrorist attacks in Germany, Schäuble said. He said Germany continues to be a target for terrorists because of its growing military engagement in Afghanistan and the strengthening of the terrorist network Al Qaida.
Intelligence services must develop their ability to gather information in order to prevent future attacks, Schäuble said.
The interior minister also said neo-Nazis continued attempts last year to infiltrate mainstream German culture, especially by offering recreational programs for young men. Violent right-wing groups are increasingly operating across national borders, he said.
According to the government report issued Thursday, there were 28,538 politically motivated crimes in Germany last year - a slight decrease over 2006. The report attributed 980 crimes to right-wing groups, a slight decrease, and 833 crimes to left-wing extremists.
The government report tallied 4,400 neo-Nazis in Germany in 2007, an increase of 200 people over the previous year. Some 6,300 potentially violent leftists were tallied in 2007.
There were few substantive changes in Germany's extremist left, Schäuble said, despite the much-publicized rise of the hard-line socialist Left party, Die Linke. Germany's domestic intelligence services have long been monitoring individual members of the party, formed in part from the ashes of the East German communist party.
"We must continue to monitor The Left party," Schäuble said, saying there are extremist elements within the party.
Schäuble continued to reject calls to ban the neo-Nazi NPD party, saying a ban "could result in an outcome opposite to our hopes" and adding that right-wing extremism is best fought on a political stage.
Many argue that banning the NPD altogether could push it underground - making it more dangerous and perhaps even more attractive to people who are disaffected with politics.