Speaking at an official state memorial broadcast live on Israeli television, Peres warned that the status quo between Israel and the Palestinians could not go on, in a clear call for the government to advance the fledgling peace talks.
And he said the right-wing Jewish extremist who gunned down Rabin at a peace rally in Tel Aviv just two years after the signing of the Oslo Accords "will never be forgiven."
"Those who delude themselves that the status quo between us and the Palestinians will continue may become a victim of their delusions," Peres said, insisting that only a two-state solution could maintain Israel's "future as a Jewish and democratic state."
"Rabin was assassinated but the need to take the historical decision remains," he persisted in a direct appeal to move forward with US-brokered peace talks, which resumed in Washington in late July after a three-year hiatus.
"Peace is made with enemies to escape the heavy price we already pay today for hostilities and which could become even more costly in the future," he said.
But Netanyahu, who spoke after him, was quick to answer, warning of the dangers of seeking peace with those who did not want peace.
"President Peres, you rightly said that you make peace with enemies, but you make peace with enemies who want peace. Enemies who don't want peace and want to wipe us from the map are not a candidate for peace," he said, using an Israeli euphemism for Iran.
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"We must ensure that as we seek peace with our neighbours... we don't give a foothold to those sort of enemies in territories which are essential and which are near to the heart of Israel," Netanyahu said in a clear reference to Gaza's Hamas rulers, a close ally of Iran.
"We don't want an Iranian satellite in the West Bank as has already happened along our borders" in Gaza, he said.
"It mean that Israel's security border must be established in the Jordan Valley exactly as Yitzhak Rabin said in his last speech to the parliament several weeks before his death."
Netanyahu has repeatedly insisted on an Israeli military presence in the Jordan Valley in any final settlement, although the Palestinians refuse to countenance troops remaining on land they want for a future state.
Rabin was shot dead on November 4, 1995 just two years after the signing of the Oslo peace accords, for which he and Peres were awarded the Nobel Peace Prize along with Palestinian leader Yasser Arafat.
Tens of thousands of Israelis gathered in Tel Aviv on Saturday to mark the anniversary of Rabin's murder, with Peres vowing that the killer would never be forgiven.
"(Rabin) survived the flames of war but was exposed to the gun of the murderer who pulled the trigger and shot him in the back," Peres said.
"His crime will never be forgiven."