The "first job contract" would have allowed employers to fire workers aged under 26 at any time during a two-year trial period without giving a reason.

Chirac enacted the law earlier this month, but immediately suspended it to give ruling conservative lawmakers a chance to meet with unions and look for a way out of the turmoil.

Villepin drew up the labor legislation as part of his response to last fall's wave of rioting in France's impoverished suburbs, where many immigrants and their French-born children live. The unemployment rate for youths under 26 is a staggering 22 percent nationwide, but soars to nearly 50 percent in some of those troubled areas.

The plan sparked weeks of protests and strikes that shut down dozens of universities, prompted clashes between youths and police, and tangled road, train and air travel.

At least five demonstrations since early March drew more than 100,000 people, culminating in two that each brought at least 1 million to the streets across France in the past two weeks. Many ended in violence as youths threw stones, bottles and other projectiles at riot police, who responded by firing tear gas and swinging batons.

Unions had been threatening more demonstrations and walkouts just hours before the announcement from Chirac ¡ª and some students appeared unwilling to abandon their protest right away.

"We must go forward carefully," said Lise Prunier, an 18-year-old biology student at the University of Paris-Jussieu. "For the moment, our movement will continue."

Villepin, widely seen as a potential candidate for next year's presidential elections, has suffered heavy blows to his popularity over the crisis.

A new poll showed that 85 percent of French people think the crisis has also weakened the 73-year-old Chirac, who has ruled France for 11 years. The poll was conducted by the CSA polling agency last week among 1,005 respondents and gave no margin of error.