The Social Democrats are keen to end an uneasy "grand coalition" under Merkel next year, but polls show them facing a difficult battle to win back the chancellery.
The general secretary of Merkel's party, Ronald Pofalla, said the Social Democrats had offered only a "meager" message: "that they once again have a new leadership - for the third time since the 'grand coalition' began."
Steinmeier suggested the global financial crisis would create a favorable climate for his party. It has championed a national minimum wage and called for curbs on perceived excesses in managers' pay.
"The rule of radical market ideology that began with Margaret Thatcher and Ronald Reagan has ended with a loud bang," Steinmeier told delegates. "The world is holding its breath, but also breathing a sigh of relief."
"This new time that is dawning now must become our time - the time of social democracy," he said.
Steinmeier called for a "protective shield for jobs in Germany" to follow efforts to prop up the financial sector, and urged companies not to shed skilled workers.
Steinmeier, 52, emerged as the Social Democrats' challenger to Merkel after months of infighting over the party's direction undermined the authority of then-leader Kurt Beck, who quit abruptly last month.
The party has struggled to cope with both the popularity of Merkel and the challenge from the new Left Party, which combines reform-weary former Social Democrats with ex-communists.
Recent polls have shown the Social Democrats trailing Merkel's Christian Democrats by about 10 points and Germans preferring Merkel to Steinmeier as chancellor, although the foreign minister is rated one of the country's most popular politicians.
Steinmeier was former Chancellor Gerhard Schroeder's chief of staff. He has never held elected office and is untested as a campaigner, but he touted his experience on Saturday.
