"We have decided to propose a working group for fighting and preventing radicalisation," French Interior Minister Bruno Le Roux told a news conference in Paris.
"We will take the common initiative of proposing a European centre for sharing best practices on this issue which is a concern for the whole of Europe," he said.
"We have already done a great deal in terms of cracking down... but a crackdown alone can never be the only response in terms of fighting terrorism," said his German counterpart, Thomas de Maiziere.
Since early 2015, Europe has faced a growing number of attacks by Islamic extremists which have left hundreds of people dead and put huge pressure on security forces across the continent.
"This centre that we are hoping to set up is not intended to replace national initiatives, but to bring the different strands together, for example by evaluating the activities of the Islamic State group, and developing a counter-narrative to reach young people who are tempted by radicalisation," he said.
The centre would offer access to counterterror experts, scientists and possibly even to those who have turned their back on radicalism and are now working to prevent it, he said.
Last month, a French senate committee released a damning report on the government's efforts push de-radicalisation, saying the policy had been a complete "failure".